S&P downgrades Tyco, rates new loan BBB+

S&P said it lowered the corporate credit rating on Tyco International plc to BBB+ from A- and removed the rating from CreditWatch, where it was placed with negative implications in January.

The outlook is stable

The agency also said it affirmed the BBB+ corporate credit rating on Johnson Controls Inc. and removed the rating from CreditWatch, where it was placed with positive implications in January.

Under the terms of the proposed transaction, Tyco will serve as the ultimate parent and reporting entity.

S&P also said it assigned a BBB+ corporate credit rating and A-2 short-term rating to Tyco's subsidiary Tyco International Holding Sarl, along with a BBB+ rating to its $4 billion senior unsecured term loan due 2019, which will be drawn upon following the completion of the merger.

The agency also said it affirmed the BBB+ ratings on Tyco International Finance SA and Johnson Controls’ unsecured debt issues and removed the ratings from CreditWatch.

The company is expected to exchange Johnson Controls’ outstanding unsecured notes for Tyco International’s unsecured notes, S&P said.

The agency also said it affirmed the A-2 short-term ratings on all of the companies.

The downgrade of Tyco, which will be renamed Johnson Controls International plc, reflects the company's weakening credit ratios due to the increased debt required to fund the merger, which will leave the company with an estimated adjusted debt-to-EBITDA ratio of about 2.6x in 2017, S&P explained.

The stable outlook reflects an expectation that the company's earnings will benefit from merger synergies and modest revenue growth, the agency added.

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