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Tyco’s excesses stretch into the capital markets

Issuer: Tyco InternationalSize: $.4.5 billion 144a convertible bondBookrunners: Morgan Stanley, Banc of America Securities, Citigroup

Tyco International's penchant for corporate excess under its previous management team made all the headlines last year. Tax dodges, false filing, $5,000 shower curtains: you name it, Tyco appears to have done it.

That excess stretched into the capital markets as well. Last year the company had $23 billion in debt liable for refinancing or repayment, this year it was $11.6 billion. And it had a problem, which it revealed in its 10-K filing in December: a funding gap in 2003 of $3.6 billion.

Last month's $4.5 billion two-tranche convertible deal, issued concurrently with the closing of a $1.5 billion 364-day bank loan facility, has closed that gap, and should enable the company to meet all its commitments this year, leaving the new management team free to concentrate on running the business rather than fretting about liquidity.

Much of this year's repayments total is the result of the company's three-month flirtation with the structure du jour of 2000-01: convertible bonds with zero coupon and zero yield. How could a company like Tyco pass up what was, in effect, free money. So, first in November 2000 and then again in February 2001, Tyco issued multi-billion dollar zero-zeros.

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