Moody's rates Tyco notes Ba2

Moody's Investors Service has assigned a Ba2 senior unsecured debt rating to a $1 billion 10-year note issuance of Tyco International Group S.A., the principle debt issuer for Tyco International Ltd. and its consolidated subsidiaries. The rating outlook is stable.

Net proceeds will be used for debt reduction.

The rating reflects Tyco's financial performance in a weak global economy that resulted in very strong free cash flow generation and meaningful debt reduction. Moody's noted however that a number of Tyco's businesses are challenged and organic growth was limited to the Healthcare operating segment. The rating also incorporates the company's ongoing SEC investigation and litigation matters, and the need to streamline its portfolio of businesses that may lead to further goodwill and asset impairments.

The stable rating outlook anticipates that intermediate term earnings and cash flow will continue to provide improving debt protection measures. Financial performance is expected to improve due to divestitures, cost initiatives, restructuring actions and modest organic revenue growth.

The rating outlook also incorporates Tyco's ample liquidity to meet the $2.5 billion of Tyco International Ltd.'s Liquid Yield Option Notes that are expected to be "put" this month, and provide for handling the roughly $1 billion of debt maturities in calendar 2004.

Moody's did note, however, that the company's undrawn $1.5 billion 364-day bank revolving credit agreement with TIGSA as borrower matures at the end of January 2004, and Tyco still has $2 billion drawn under its multi-year bank revolver with a final maturity of February 2006.

However, the rating agency expects that Tyco will generate over $300 million of free cash flow during the current quarter which, along with the company's total cash position of over $4.2 billion (roughly $5.2 billion adding net proceeds from the proposed note issuance), provides strong near-term liquidity. Upcoming maturities include: the aforementioned putable LYONs, and an additional $1 billion of debt maturities in calendar 2004.

Moody's noted that cash on hand and expected free cash flow over the next three quarters of at least $2.8 billion should be sufficient to meet these debt obligations should the 364-day bank facility not be renewed. Cash balances at 2004 calendar year-end are expected to be more than $5 billion before any tendering for debt obligations, voluntary pension contributions, or potential net proceeds from asset sales.

Moody's indicated that sustained improved financial performance and normalization of bank credit commitments could have positive rating implications.

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