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Tyco stock sinks further
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February 5, 2002: 6:10 p.m. ET
Tyco Capital to tap credit lines; Tyco International falls another 23%.
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NEW YORK (CNN/Money) - Shares of Tyco International Ltd. sank another 23 percent Tuesday amid concerns about the company's ability to get financing after its credit ratings were cut.
And the stock continued to fall in after-hours trading as Tyco's financial services arm Tyco Capital said it would draw from $8.5 billion in bank credits in order to pay off debt.
The move is similar to parent-company Tyco International's (TYC: down $6.80 to $23.10, Research, Estimates) move on Monday to tap credit lines in order to pay off debt in the face of concerns about the company's proposed split into four companies and its accounting.
The collapse of energy trader Enron Corp. amid questions about its accounting practices has placed new emphasis on financial disclosure practices. Tyco International announced plans last month to split into four separate companies, a move it said would unlock shareholder value. But the move follows some complaints that its accounting was difficult to understand, particularly in relation to acquisitions.
Tyco Capital's decision to tap credit facilities drew a similar reaction from credit rating agency Fitch as its parent company's move Monday.
Fitch placed Tyco Capital on ratings watch "evolving," meaning ratings could be affirmed, raised or lowered, and cut Tyco's senior debt, subordinated debt, preferred stock, and commercial paper to "A-," "BBB+," "BBB+," and "F2" from "A+," "A," A," and "F1."
On Monday Fitch Ratings placed Tyco International debt on "ratings watch negative," and cut its senior unsecured debt to "A-" from "A."
Standard & Poor's also lowered its Tyco International rating, moving the company to "BBB" from "A."
Tyco Capital, which is mulling a sale to another entity and distancing itself from its parent, said it will use the bank credit facilities to repurchase its outstanding commercial paper at scheduled maturities.
"It is our intent, as an independent finance company, to return to the commercial paper market with a dealer based program, committed to maintaining ratings of the highest level for our commercial paper," Albert Gamper, Tyco Capital's president and chief executive, said in a statement.
Though Tyco's bonds remain investment-grade, bond investors are treating them like junk, quoting the bonds by price rather than by their yield margin over U.S. Treasuries.
But analysts say that no end seems in sight for the rapid decline of Tyco's shares or bonds.
"There's no reason to believe this name has bottomed out," said Carol Levenson, a bond analyst at Gimme Credit, who raised questions in a Tuesday research note about how the company would refinance an estimated $11 billion in maturities coming due over the next 18 months.
"Whether (Tyco's) life as a short-seller's clay pigeon has been the driver or whether the company's own inability to make the case clearly enough has been the culprit, (Tyco) now is in a major league quandary," wrote Glenn Reynolds, a bond analyst at CreditSights in a Tuesday research note.
Reynolds said Tyco's tapping into credit lines and its inability to issue commercial paper demands an entirely new capital structure for the company.
A Tyco spokesperson was not immediately available for comment.
Shares of Tyco International fell 85 cents to $22.25 after hours on Instinet. 
-- from staff and wire reports
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