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Tyco plans to reshuffle $4.5 billion in debt


EXETER, N.H. - Tyco International Ltd. said yesterday that it plans to tap bank loans to repay $4.5 billion in commercial paper amid investor speculation the company may get shut out by other corporate lenders.

"There are market concerns because most of the [Tyco] paper is sold overnight and investors have been reluctant to hold it longer than that for several weeks," said Frank Rachwalski, who helps manage about $328 billion in assets at Zurich Scudder Investments Inc. in Chicago.

Yields on Tyco's bonds rose and its shares fell 19 percent as the company's flexibility is reduced by shifting the debt to $5.9 billion in lending agreements provided by banks led by J.P. Morgan Chase & Co. Similar maneuvers by Enron Corp. and Xerox Corp. when they ran into financial problems is adding to the slide in the company's securities.

Standard & Poor's Corp. and Fitch Ratings lowered their ratings on Tyco's bonds and commercial paper. S&P; said the drawing down of the loans is indicative of uncertainty about the company's access to financing and the lower level of cushion available under Tyco's lending agreements. The company has about $57 billion in debt.

Tyco, whose shares already had dropped 40 percent this year, also disclosed that it spent $8 billion in the past three fiscal years on more than 700 purchases it didn't make public. Chief Executive Officer Dennis Kozlowski said two weeks ago that he would split Tyco into four companies to resolve investors' concerns that it used acquisitions to mask slower growth.

The smaller acquisitions didn't need to be announced because they weren't "material compared with the company's total assets," Chief Financial Officer Mark Swartz said in an interview.

Tyco's commercial paper was yielding about 50 basis points more than the London Interbank Offer Rate on Friday, up about 10 basis points from two weeks earlier, said Steve Traum, who helps manage about $15 billion of fixed-income assets at Teachers Insurance and Annuity Association - College Retirement Equities Fund.

"We didn't think there was any upside on the short-term side" to the company's breakup, said Traum, who sold Tyco commercial paper last month.

Tyco's shares dropped $6.96 yesterday, or 19 percent, to close at $29.90.

The company, which makes products ranging from electrical connectors to industrial valves to security systems, had lost about $46 billion in market value since December.

Tyco's 6.38 percent coupon bonds maturing in 2011 dropped $135 to $791 per $1,000 face amount, pushing the yield 230 basis points higher to 9.76 percent. The spread, or premium to U.S. Treasuries, widened to 480 basis points from 250 basis points, traders said.

S&P; and Fitch reduced their ratings on Tyco's bonds after the announcement, and Moody's Investors Service Inc. said it continues to review its long-term ratings on Tyco's bonds.

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