NEW YORK — Tyco International said Friday that, despite recent troubles, it remains “committed to completing an initial public offering” for the CIT Group, its factoring and commercial finance unit.
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A downgrade of Tyco’s debt by Moody’s Investors Service made explicit how important the move is for both businesses.
The company had planned an IPO for CIT later this month, but it could get pushed into July, while Tyco works with the Securities and Exchange Commission to bring goodwill accounting for CIT in line with the requisite standard.
An IPO of CIT could raise up to $7.2 billion, but is expected to fetch closer to $5 billion to $6 billion. Tyco acquired CIT last year for $9.5 billion in cash and stock. Goldman Sachs is the lead underwriter.
John Fort, the former Tyco executive who’s now leading the company following the resignation of chief executive officer Dennis Kozlowski, is expected to announce a $6 billion charge in the next few months in connection with the asset write-down of CIT after the IPO is effected.
While Moody’s affirmed its debt rating on CIT at “A2,” Tyco’s rating was downgraded to “Baa3,” one step above speculative or junk status. Tyco remains under review for possible downgrade.
The ratings cover about $34 billion of debt from CIT and $25 billion from Tyco.
The sale of CIT is vital to Tyco, said Moody’s. “Absent significant near-term debt reduction with proceeds from a successful sale of CIT, Tyco’s ratings would likely fall into speculative grade,” said analyst George Meyers in a statement.
Critical to the CIT rating, said the analyst, is the expectation that it “will be completely separated from Tyco in the very near future, as early as the end of June.” Should the disposition of the business take longer, “it is likely that CIT’s long- and short-term ratings would be adjusted downward.”
Still, Meyers noted: “The underlying CIT franchise remains sound, despite its need to tap alternate sources of liquidity and control its growth” and employee distraction due to Tyco’s high-profile difficulties.”