Welcome!

Wireless Authors: Carmen Gonzalez, Scott Hirsch, Sandi Mappic, Trevor Parsons, Esmeralda Swartz

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
The Internet of Things will greatly expand the opportunities for data collection and new business models driven off of that data. In her session at Internet of @ThingsExpo, Esmeralda Swartz, CMO of MetraTech, will discuss how for this to be effective you not only need to have infrastructure and operational models capable of utilizing this new phenomenon, but increasingly service providers will need to convince a skeptical public to participate. Get ready to show them the money! Speaker Bio: Esmeralda Swartz, CMO of MetraTech, has spent 16 years as a marketing, product management, and busin...
Samsung VP Jacopo Lenzi, who headed the company's recent SmartThings acquisition under the auspices of Samsung's Open Innovaction Center (OIC), answered a few questions we had about the deal. This interview was in conjunction with our interview with SmartThings CEO Alex Hawkinson. IoT Journal: SmartThings was developed in an open, standards-agnostic platform, and will now be part of Samsung's Open Innovation Center. Can you elaborate on your commitment to keep the platform open? Jacopo Lenzi: Samsung recognizes that true, accelerated innovation cannot be driven from one source, but requires a...
SYS-CON Events announced today that Red Hat, the world's leading provider of open source solutions, will exhibit at Internet of @ThingsExpo, which will take place on November 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA. Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As the connective hub in a global network of enterprises, partners, a...
P2P RTC will impact the landscape of communications, shifting from traditional telephony style communications models to OTT (Over-The-Top) cloud assisted & PaaS (Platform as a Service) communication services. The P2P shift will impact many areas of our lives, from mobile communication, human interactive web services, RTC and telephony infrastructure, user federation, security and privacy implications, business costs, and scalability. In his session at Internet of @ThingsExpo, Robin Raymond, Chief Architect at Hookflash Inc., will walk through the shifting landscape of traditional telephone a...
SYS-CON Events announced today that Matrix.org has been named “Silver Sponsor” of Internet of @ThingsExpo, which will take place on November 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA. Matrix is an ambitious new open standard for open, distributed, real-time communication over IP. It defines a new approach for interoperable Instant Messaging and VoIP based on pragmatic HTTP APIs and WebRTC, and provides open source reference implementations to showcase and bootstrap the new standard. Our focus is on simplicity, security, and supporting the fullest feature set.
BSQUARE is a global leader of embedded software solutions. We enable smart connected systems at the device level and beyond that millions use every day and provide actionable data solutions for the growing Internet of Things (IoT) market. We empower our world-class customers with our products, services and solutions to achieve innovation and success. For more information, visit www.bsquare.com.
How do APIs and IoT relate? The answer is not as simple as merely adding an API on top of a dumb device, but rather about understanding the architectural patterns for implementing an IoT fabric. There are typically two or three trends: Exposing the device to a management framework Exposing that management framework to a business centric logic • Exposing that business layer and data to end users. This last trend is the IoT stack, which involves a new shift in the separation of what stuff happens, where data lives and where the interface lies. For instance, it’s a mix of architectural style...
SYS-CON Events announced today that SOA Software, an API management leader, will exhibit at SYS-CON's 15th International Cloud Expo®, which will take place on November 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA. SOA Software is a leading provider of API Management and SOA Governance products that equip business to deliver APIs and SOA together to drive their company to meet its business strategy quickly and effectively. SOA Software’s technology helps businesses to accelerate their digital channels with APIs, drive partner adoption, monetize their assets, and achieve a...
From a software development perspective IoT is about programming "things," about connecting them with each other or integrating them with existing applications. In his session at @ThingsExpo, Yakov Fain, co-founder of Farata Systems and SuranceBay, will show you how small IoT-enabled devices from multiple manufacturers can be integrated into the workflow of an enterprise application. This is a practical demo of building a framework and components in HTML/Java/Mobile technologies to serve as a platform that can integrate new devices as they become available on the market.
SYS-CON Events announced today that Utimaco will exhibit at SYS-CON's 15th International Cloud Expo®, which will take place on November 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA. Utimaco is a leading manufacturer of hardware based security solutions that provide the root of trust to keep cryptographic keys safe, secure critical digital infrastructures and protect high value data assets. Only Utimaco delivers a general-purpose hardware security module (HSM) as a customizable platform to easily integrate into existing software solutions, embed business logic and build s...
Connected devices are changing the way we go about our everyday life, from wearables to driverless cars, to smart grids and entire industries revolutionizing business opportunities through smart objects, capable of two-way communication. But what happens when objects are given an IP-address, and we rely on that connection, sometimes with our lives? How do we secure those vast data infrastructures and safe-keep the privacy of sensitive information? This session will outline how each and every connected device can uphold a core root of trust via a unique cryptographic signature – a “bir...
Internet of @ThingsExpo Silicon Valley announced on Thursday its first 12 all-star speakers and sessions for its upcoming event, which will take place November 4-6, 2014, at the Santa Clara Convention Center in California. @ThingsExpo, the first and largest IoT event in the world, debuted at the Javits Center in New York City in June 10-12, 2014 with over 6,000 delegates attending the conference. Among the first 12 announced world class speakers, IBM will present two highly popular IoT sessions, which will take place November 4-6, 2014 at the Santa Clara Convention Center in Santa Clara, Calif...
Almost everyone sees the potential of Internet of Things but how can businesses truly unlock that potential. The key will be in the ability to discover business insight in the midst of an ocean of Big Data generated from billions of embedded devices via Systems of Discover. Businesses will also need to ensure that they can sustain that insight by leveraging the cloud for global reach, scale and elasticity.
WebRTC defines no default signaling protocol, causing fragmentation between WebRTC silos. SIP and XMPP provide possibilities, but come with considerable complexity and are not designed for use in a web environment. In his session at Internet of @ThingsExpo, Matthew Hodgson, technical co-founder of the Matrix.org, will discuss how Matrix is a new non-profit Open Source Project that defines both a new HTTP-based standard for VoIP & IM signaling and provides reference implementations.

SUNNYVALE, Calif., Oct. 20, 2014 /PRNewswire/ -- Spansion Inc. (NYSE: CODE), a global leader in embedded systems, today added 96 new products to the Spansion® FM4 Family of flexible microcontrollers (MCUs). Based on the ARM® Cortex®-M4F core, the new MCUs boast a 200 MHz operating frequency and support a diverse set of on-chip peripherals for enhanced human machine interfaces (HMIs) and machine-to-machine (M2M) communications. The rich set of periphera...

SYS-CON Events announced today that Aria Systems, the recurring revenue expert, has been named "Bronze Sponsor" of SYS-CON's 15th International Cloud Expo®, which will take place on November 4-6, 2014, at the Santa Clara Convention Center in Santa Clara, CA. Aria Systems helps leading businesses connect their customers with the products and services they love. Industry leaders like Pitney Bowes, Experian, AAA NCNU, VMware, HootSuite and many others choose Aria to power their recurring revenue business and deliver exceptional experiences to their customers.
The Internet of Things (IoT) is going to require a new way of thinking and of developing software for speed, security and innovation. This requires IT leaders to balance business as usual while anticipating for the next market and technology trends. Cloud provides the right IT asset portfolio to help today’s IT leaders manage the old and prepare for the new. Today the cloud conversation is evolving from private and public to hybrid. This session will provide use cases and insights to reinforce the value of the network in helping organizations to maximize their company’s cloud experience.
The Internet of Things (IoT) is making everything it touches smarter – smart devices, smart cars and smart cities. And lucky us, we’re just beginning to reap the benefits as we work toward a networked society. However, this technology-driven innovation is impacting more than just individuals. The IoT has an environmental impact as well, which brings us to the theme of this month’s #IoTuesday Twitter chat. The ability to remove inefficiencies through connected objects is driving change throughout every sector, including waste management. BigBelly Solar, located just outside of Boston, is trans...
SYS-CON Events announced today that Matrix.org has been named “Silver Sponsor” of Internet of @ThingsExpo, which will take place on November 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA. Matrix is an ambitious new open standard for open, distributed, real-time communication over IP. It defines a new approach for interoperable Instant Messaging and VoIP based on pragmatic HTTP APIs and WebRTC, and provides open source reference implementations to showcase and bootstrap the new standard. Our focus is on simplicity, security, and supporting the fullest feature set.
Predicted by Gartner to add $1.9 trillion to the global economy by 2020, the Internet of Everything (IoE) is based on the idea that devices, systems and services will connect in simple, transparent ways, enabling seamless interactions among devices across brands and sectors. As this vision unfolds, it is clear that no single company can accomplish the level of interoperability required to support the horizontal aspects of the IoE. The AllSeen Alliance, announced in December 2013, was formed with the goal to advance IoE adoption and innovation in the connected home, healthcare, education, aut...