Management's Credibility:
"...no potential buyer has expressed willingness to pay Tyco's asking price, executives close to the company said yesterday.
But spinning off CIT will make Tyco's balance sheet look much weaker, some analysts contend, because it will leave Tyco without the $11 billion in equity that it has put into CIT.
Nick Heymann, an analyst at Prudential Securities, said Tyco's debt-to-capital ratio would rise to 48 percent from 38 percent if it spun off CIT without getting cash for the company, he said.
In addition, Tyco may take other write-offs that would shrink its equity, he said. As a result, he added, Tyco could come close to violating its agreements with its lenders, which require it to have a debt-to-capital ratio of no more than 52 percent.
"You're getting close to triggering that 52 percent covenant," Mr. Heymann said. If Tyco does violate its covenants, it would have to renegotiate $13.5 billion in bank loans, he said. Tyco would almost certainly be able to do that, but it might have to pay a higher interest rate, he said..." |
