Click here to close now.



Welcome!

Mobile IoT Authors: Harry Trott, Stefano Stabellini, Dana Gardner, Liz McMillan, Scott Allen

News Feed Item

Fitch Downgrades ADT's IDR to 'BBB'; Outlook Stable

Fitch Ratings has downgraded the ratings of The ADT Corporation (ADT), including the company's Issuer Default Rating (IDR) to 'BBB' from 'BBB+'. The Rating Outlook remains Stable. A complete list of the rating actions follows at the end of this release.

The downgrade reflects ADT's recently announced $2 billion share repurchase program that will be funded by debt and free cash flow (FCF). The company's board of directors announced today the authorization of a $2 billion share repurchase program over a 3-year period. ADT expects to incur incremental debt to finance these share repurchases and has targeted a leverage ratio as measured by debt to EBITDA of 2x.

ADT expects to incur $650 million - $900 million of incremental debt in 2013 and return approximately $900 million to $1 billion to shareholders in the form of share repurchases and dividends. Based on the projected share repurchases and debt levels, Fitch projects ADT's leverage will increase from approximately 1.6x during fiscal 2012 (ending Sept. 28, 2012) to about 2x for fiscal 2013 and 2014. Interest coverage is projected to range from 13x - 14.5x over the next two years. Fitch had originally expected ADT to maintain leverage at around 1.5x and interest coverage above 15x.

The downgrade also reflects management's willingness to undertake a more aggressive financial strategy soon after becoming an independent company. These actions also provide some uncertainty regarding management's financial policies beyond the near term. Fitch will continually evaluate how management balances demands from its shareholders while maintaining its commitment to an investment grade profile.

ADT's ratings and Outlook reflect the company's strong brand recognition, its national footprint and leading market position, recurring revenue base, sustainable FCF generation and solid liquidity. Concerns include emerging competition from non-traditional security service providers, risk associated with operating as an independent public company, and contingent liabilities, particularly tax liabilities, related to the spin-off.

The ratings incorporate ADT's strong competitive position as the largest residential security provider in the U.S.. ADT currently has over six million customers and a roughly 25% market share based on company estimates. ADT's competitive position is supported by a nationwide network of over 200 branches, 4,500 sales professionals, and more than 3,800 installation and service technicians. Additionally, ADT has nearly 400 certified dealers that generate about 45% of the company's new accounts.

ADT's subscriber-based business requires significant upfront costs to generate new customers. Capital expenditures, including dealer-generated accounts and bulk purchases and subscriber systems, totaled $1.09 billion and $902 million in 2012 and 2011, respectively. Capital expenditures for 2012 represent approximately 33% of annual revenues. Fitch expects capital expenditures to approximate 35% - 40% of annual revenues in the next few years. Fitch estimates that new customers yield an average cash payback of three years.

ADT has shown the ability to generate sustainable FCF in spite of the large capital expenditures that it incurs. ADT's subscriber-based business and recurring revenue stream contribute to steady income and cash flow. Revenues have been relatively stable as approximately 90% of its annual sales are recurring in nature. ADT generated roughly $406 million and $537 million of FCF during 2012 and 2011, respectively. Fitch expects ADT will generate annual FCF (FCF: Cash flow from operations less capital expenditures and dividends) of approximately $275 million - $350 million during the next few years.

Fitch expects ADT will maintain liquidity of approximately $1 billion, consisting of cash and availability under a $750 million revolving credit facility. ADT does not have any debt maturities until 2017, when $750 million of senior notes become due.

Fitch believes that ADT's competitive position will remain strong in the near-to-intermediate term. However, ADT faces competition from non-traditional security service providers. Several cable and telecom companies have introduced interactive security services that compete with ADT. While the customer base of these companies is substantially smaller than ADT at the current time, this emerging trend could provide significant competition for ADT going forward. The penetration rate for cable and internet providers is significantly higher (60%-85% range) compared to traditional security providers (20% range). This gives cable and telecom companies a larger customer base from which to sell additional product offerings and/or bundle services at perhaps more competitive prices.

ADT is run by a well-seasoned management team led by Naren Gursahaney, who served as President of Tyco's ADT North American Residential business segment prior to the spin-off. ADT has other executives with extensive company and industry experience.

As part of the separation, ADT has entered into separation and distribution and other agreements with Tyco and Pentair Ltd. (formerly Flow Control). This will govern the relationship between the post-separation entities and provide for the allocation of various assets (including trademarks) and liabilities and obligations (related to asbestos, pension and tax-related matters).

ADT also entered into a Tax Sharing Agreement with Tyco and Pentair. This agreement will govern the rights, responsibilities and obligations of the three post-separation companies regarding certain tax matters. The Tax Sharing Agreement outlines each company's share of certain tax liabilities. Tyco will be responsible for the first $500 million of shared tax liabilities. ADT and Pentair will share 58% and 42%, respectively, of the next $225 million of shared tax liabilities. Finally, ADT, Tyco and Pentair will share 27.5%, 52.5% and 20%, respectively, of shared tax liabilities above $725 million.

Future ratings and Outlooks will be influenced by broad economic trends, as well as company-specific activity, particularly free cash flow trends and uses, debt levels and liquidity position. Positive rating actions are unlikely in the near to intermediate term as Fitch evaluates ADT's performance and management's financial strategy as a stand-alone company. On the other hand, Fitch may consider taking a negative rating action if there is meaningful deterioration in ADT's financial results or management undertakes a more aggressive financial policy, leading to diminished liquidity and higher debt levels. In particular, negative rating actions could occur if ADT's leverage is consistently above 2.5x.

Fitch has downgraded the following ratings for ADT:

-- IDR to 'BBB' from 'BBB+';

-- Revolving bank credit facility to 'BBB' from 'BBB+';

-- Senior unsecured debt to 'BBB' from 'BBB+'.

Fitch has also affirmed the following ratings for ADT:

--Short term IDR 'F2';

--Commercial Paper 'F2'.

Additional information is available at www.fitchratings.com'. Fitch has conducted a Rating Assessment Service for the ADT Corporation. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012)

--'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 8, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Short-Term Ratings Criteria for Non-Financial Corporates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685553

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

@ThingsExpo Stories
When people aren’t talking about VMs and containers, they’re talking about serverless architecture. Serverless is about no maintenance. It means you are not worried about low-level infrastructural and operational details. An event-driven serverless platform is a great use case for IoT. In his session at @ThingsExpo, Animesh Singh, an STSM and Lead for IBM Cloud Platform and Infrastructure, will detail how to build a distributed serverless, polyglot, microservices framework using open source tec...
IoT offers a value of almost $4 trillion to the manufacturing industry through platforms that can improve margins, optimize operations & drive high performance work teams. By using IoT technologies as a foundation, manufacturing customers are integrating worker safety with manufacturing systems, driving deep collaboration and utilizing analytics to exponentially increased per-unit margins. However, as Benoit Lheureux, the VP for Research at Gartner points out, “IoT project implementers often ...
Basho Technologies has announced the latest release of Basho Riak TS, version 1.3. Riak TS is an enterprise-grade NoSQL database optimized for Internet of Things (IoT). The open source version enables developers to download the software for free and use it in production as well as make contributions to the code and develop applications around Riak TS. Enhancements to Riak TS make it quick, easy and cost-effective to spin up an instance to test new ideas and build IoT applications. In addition to...
Presidio has received the 2015 EMC Partner Services Quality Award from EMC Corporation for achieving outstanding service excellence and customer satisfaction as measured by the EMC Partner Services Quality (PSQ) program. Presidio was also honored as the 2015 EMC Americas Marketing Excellence Partner of the Year and 2015 Mid-Market East Partner of the Year. The EMC PSQ program is a project-specific survey program designed for partners with Service Partner designations to solicit customer feedbac...
Machine Learning helps make complex systems more efficient. By applying advanced Machine Learning techniques such as Cognitive Fingerprinting, wind project operators can utilize these tools to learn from collected data, detect regular patterns, and optimize their own operations. In his session at 18th Cloud Expo, Stuart Gillen, Director of Business Development at SparkCognition, discussed how research has demonstrated the value of Machine Learning in delivering next generation analytics to imp...
In his general session at 18th Cloud Expo, Lee Atchison, Principal Cloud Architect and Advocate at New Relic, discussed cloud as a ‘better data center’ and how it adds new capacity (faster) and improves application availability (redundancy). The cloud is a ‘Dynamic Tool for Dynamic Apps’ and resource allocation is an integral part of your application architecture, so use only the resources you need and allocate /de-allocate resources on the fly.
It is one thing to build single industrial IoT applications, but what will it take to build the Smart Cities and truly society changing applications of the future? The technology won’t be the problem, it will be the number of parties that need to work together and be aligned in their motivation to succeed. In his Day 2 Keynote at @ThingsExpo, Henrik Kenani Dahlgren, Portfolio Marketing Manager at Ericsson, discussed how to plan to cooperate, partner, and form lasting all-star teams to change t...
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life sett...
There are several IoTs: the Industrial Internet, Consumer Wearables, Wearables and Healthcare, Supply Chains, and the movement toward Smart Grids, Cities, Regions, and Nations. There are competing communications standards every step of the way, a bewildering array of sensors and devices, and an entire world of competing data analytics platforms. To some this appears to be chaos. In this power panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, Bradley Holt, Developer Advocate a...
Connected devices and the industrial internet are growing exponentially every year with Cisco expecting 50 billion devices to be in operation by 2020. In this period of growth, location-based insights are becoming invaluable to many businesses as they adopt new connected technologies. Knowing when and where these devices connect from is critical for a number of scenarios in supply chain management, disaster management, emergency response, M2M, location marketing and more. In his session at @Th...
The cloud market growth today is largely in public clouds. While there is a lot of spend in IT departments in virtualization, these aren’t yet translating into a true “cloud” experience within the enterprise. What is stopping the growth of the “private cloud” market? In his general session at 18th Cloud Expo, Nara Rajagopalan, CEO of Accelerite, explored the challenges in deploying, managing, and getting adoption for a private cloud within an enterprise. What are the key differences between wh...
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, wh...
Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is expected in the amount of information being processed, managed, analyzed, and acted upon by enterprise IT. This amazing is not part of some distant future - it is happening today. One report shows a 650% increase in enterprise data by 2020. Other estimates are even higher....
SYS-CON Events announced today that Bsquare has been named “Silver Sponsor” of SYS-CON's @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. For more than two decades, Bsquare has helped its customers extract business value from a broad array of physical assets by making them intelligent, connecting them, and using the data they generate to optimize business processes.
Internet of @ThingsExpo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 19th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago. All major researchers estimate there will be tens of billions devices - comp...
19th Cloud Expo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterpri...
The 19th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Digital Transformation, Microservices and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportuni...
Internet of @ThingsExpo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with the 19th International Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world and ThingsExpo Silicon Valley Call for Papers is now open.
There is little doubt that Big Data solutions will have an increasing role in the Enterprise IT mainstream over time. Big Data at Cloud Expo - to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA - has announced its Call for Papers is open. Cloud computing is being adopted in one form or another by 94% of enterprises today. Tens of billions of new devices are being connected to The Internet of Things. And Big Data is driving this bus. An exponential increase is...
Cognitive Computing is becoming the foundation for a new generation of solutions that have the potential to transform business. Unlike traditional approaches to building solutions, a cognitive computing approach allows the data to help determine the way applications are designed. This contrasts with conventional software development that begins with defining logic based on the current way a business operates. In her session at 18th Cloud Expo, Judith S. Hurwitz, President and CEO of Hurwitz & ...