Tyco Is in Talks About Selling Debt of $4 Billion
By ROBERT TOMSHO and JATHON SAPSFORD
Staff Reporters of THE WALL STREET JOURNAL
Tyco International Ltd., facing a deadline to repay as much as $6.2 billion in bank lines and convertible debt, is in discussions with investment bankers about underwriting a convertible debt offering of as much as $4 billion, according to people close to the situation.
While cautioning that the conglomerate's refinancing strategy could ultimately go in a different direction, one person familiar with the discussions described the proposal as "very serious."
Investment concerns involved are said to include J.P. Morgan Chase & Co., Goldman Sachs Group Inc., and Citigroup Inc.'s Salomon Smith Barney unit.
If completed, the huge offering would allow the company to repay holders of $2.3 billion in existing convertible debt that comes due in February. Tyco, which is registered in Pembroke, Bermuda, could also pay down bank debt and renegotiate a $3.9 billion bank line that expires at the same time.
Analysts said it would be a major help in restoring investor confidence in a scandal-plagued company that has been staggered by criminal charges against two former top executives accused of looting $170 million via unauthorized compensation and gaining another $430 million from illicit stock sales.
"Something like this would totally put to bed fears of a financial crisis," said Glenn Reynolds, chief executive of CreditSights, a New York credit-research firm. "It would be a bold stroke."
Bond investors seemed to think so. Tyco's 6 3/8% notes, due 2011, were trading in the range of 92-94 cents on the dollar, up three cents, after word of the possible debt offering was first reported by CNBC.
Such an offering faces hurdles, however. People close to the company said Tyco is unlikely to proceed with an offer before the conclusion of an internal probe into Tyco's accounting practices. That investigation, led by attorney David Boies, is said to be nearing its end, however, and "the fact that this is sort of leaking out now suggests that the forensic audit may be reaching its conclusion with only minor issues," said Steve Altman, a bond analyst with Commerzbank in New York.
Meanwhile, although the company itself hasn't been charged with any crime, it remains under investigation by the Securities and Exchange Commission, among other entities. Securities lawyers said that, while the SEC wouldn't have to formally approve such an offering, per se, its staff would have to sign off on the related registration.
In cases where a company faces regulatory scrutiny, the SEC staff can raise so many issues that "it is essentially impossible to get the registration effective," said Matthew Maloney, a securities lawyer in Washington. "My guess is that they would try to do it on a private-placement basis," he said, echoing a strategy suggested by several other observers.
At 4 p.m. in New York Stock Exchange composite trading Thursday, Tyco shares were up 7.2%, or $1.18, at $17.58 apiece. |
