Moody's cuts Tyco to junk; JLG prices upsized deal

By Paul Deckelman and Paul A. Harris

New York, June 12 - Tyco International Corp.'s bonds have been trading like junk issues for months, and it took a big step towards have ratings to match Wednesday, as Moody's Investors Service downgraded the embattled conglomerate two notches following close on Standard & Poor's threat Tuesday to do the same. But the downgrade to junk status came too late to affect trading in its bonds. Crown Cork & Seal Co. Inc. meantime was the recipient of good news, and its bonds firmed after a positive asbestos case court ruling.

In the primary market. JLG Industries priced an upsized issue of 10-year notes and price talk emerged on three deals that remain to be priced during the rest of the week of June 10.

And amid the crash-bang of fallen deals from Wyndham, Trump and Hollywood Entertainment, Prospect News heard a "resurrection" story from a market source, Wednesday: Matthews, N.C.-based portrait photography firm PCA International, which postponed its junk bond deal for $200 million of seven-year senior notes (Caa1/B-) on April 26, was heard to be returning.

The new deal is said to be downsized by $40 million to $160 million. Like its predecessor, the new PCA International offering is said to be comprised of Rule 144A seven-year non-call-four senior notes. They have a B- with a positive outlook from Standard & Poor's. And the syndicate, according to the market source, is once again Goldman Sachs & Co. as bookrunner and Banc of America Securities as co-manager. No timing was heard.

Back among already trading issues, Tyco had been heading for junkbondland for months, as its shares and bonds steadily moved southward after the sprawling Bermuda-based conglomerate first embraced a strategy under which it would break itself up as a means of maximizing shareholder value, only to later do an abrupt about-face and abandon the plan as an ill-timed "mistake." On top of that, its plans to sell its CIT Group financial services arm had to be scrapped in favor of a spin-off and initial public offering, and chief executive officer Dennis Kozlowski was forced to quit under fire and was subsequently indicted on tax charges - and that probe has now widened to scrutinize whether the company played any part.

Moody's cited Tyco's laundry-list of troubles in its announcement that it had chopped the ratings on the company's senior unsecured bonds to Ba2 from Baa3 previously.

The rating agency said that "possible further management changes, emerging from adverse developments of corporate governance issues, could divert management focus from the core business and hinder the company's ability to restore confidence of its customers, suppliers and investors." Moody's noted that Tyco "is expected to proceed with the planned IPO of its CIT subsidiary, which should bring needed cash to begin debt reduction. However, even with the anticipated debt reduction from the CIT transaction, the potential risks attendant to the widening array of management and corporate governance issues at Tyco render the company's credit profile inconsistent with an investment grade rating."

The downgrade, however, came after bond trading had pretty much wrapped up for the day and thus had no impact on the day's dealings.

Prior to the downgrade, a market source said, Tyco's bonds "went down, then rallied a bit, but were still down about two points on the day." He quoted its 6¾% notes due 2011 down two points to 71.5 bid, while its 5.80% notes due 2006 were a point lower at 74.5.

A trader quoted Tyco's 6 3/8% notes due 2005 at 78 bid, and saw its 6 3/8% notes coming due later this year at 95 bid/96 offered - both levels recorded before the Moody's downgrade. He opined that "I think that you will see them [fall Thursday]."

Or maybe not. Tyco's shares fell to a 6-year intraday low of $8.30 Wednesday in New York Stock Exchange dealings, before bouncing off that nadir to end at $10.15, still 90 cents (8.14%) lower, on volume of 129 million shares, almost five times the norm. In after-hours trading, however, those shares shot as high as $13.10, a 29% gain, prompting several participants to wonder what was going on.

What was going on, as it turned out, was news that the Securities and Exchange Commission had - finally - cleared the way for Tyco's long-awaited and badly needed initial public offering for CIT Group. Proceeds from the IPO are slated to be used to ease a feared liquidity crunch at Tyco.

Tyco announced late Wednesday that it had agreed to restate its fiscal second-quarter results to account for about $4.5 billion related to the impairment of goodwill at CIT, thus resolving the SEC's questions and gaining the OK for the IPO.

Elsewhere, CMS Energy Corp. debt continued to retreat in the face of the three-notch downgrade which Moody's laid on the Dearborn, Mich.-based electric power producer and trader late Tuesday, after the markets had closed.

CMS debt had already been falling Tuesday on lingering fallout from its recent revelations of bogus "round-trip" power trades with other companies that artificially inflated volume statistics and revenue figures.

CMS debt "got killed, down at least 10 points," one market-watcher said, although its decline was estimated at a slightly more conservative six to seven points at another desk, where the company's 7½% notes due 2009 were seen as having fallen to around 82 bid.

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