TEXT-Fitch assigns ADT 'BBB+' IDR

(The following statement was released by the rating agency)

Oct 2 () - Fitch Ratings has assigned the following ratings to The ADTCorporation

(ADT):--Issuer Default Rating (IDR) 'BBB+';--Short term IDR 'F2';--Commercial Paper 'F2'.

Fitch is assigning these ratings along with a Stable Outlook in conjunction withthe spin-off of ADT from Tyco International, Ltd. (NYSE: TYC) on Sept. 28, 2012.Fitch also has the following ratings for ADT:

-- Revolving bank credit facility 'BBB+';-- Senior unsecured debt 'BBB+'.

ADT's ratings and Outlook reflect the company's strong brand recognition, itsnational footprint and leading market position, recurring revenue base,sustainable free cash flow (FCF) generation and solid liquidity. Concernsinclude emerging competition from non-traditional security service providers,risk associated with operating as an independent public company, and contingentliabilities, particularly tax liabilities, related to the spin-off.

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

ADT recently issued $2.5 billion of debt in connection with the spin-off. Fitchexpects ADT's credit metrics will be solidly in line with the 'BBB+' ratingcategory. Fitch projects pro forma leverage as measured by debt to earningsbefore interest, taxes and depreciation and amortization (EBITDA) to beapproximately 1.5x to 1.8x. Additionally, Fitch projects EBITDA to interest tobe above 15x for fiscal 2012 (ending Sept. 28, 2012). Fitch currently expectsADT to maintain these strong credit metrics through 2013.

ADT's subscriber-based business requires significant upfront costs to generatenew customers. Capital expenditures, including dealer-generated accounts andbulk purchases and subscriber systems, totaled $902 million and $801 million in2011 and 2010, respectively. Capital expenditures represent approximately 30% ofannual revenues. Fitch estimates that new customers yield an average cashpayback of three years.

ADT has shown the ability to generate sustainable FCF in spite of the largecapital expenditures that they incur. ADT's subscriber-based business andrecurring revenue stream contribute to steady income and cash flow. Revenueshave been relatively stable as approximately 89% of its annual sales arerecurring in nature. ADT generated roughly $537 million and $269 million of FCFduring 2011 and 2010, respectively. Fitch expects ADT will generate annual FCFof approximately $400 million-$500 million during the next few years.

ADT's financial results tend to be more consistent from period to period(relative to Tyco and Flow Control). As a result, ADT may undertake a moreaggressive financial strategy compared to its predecessor company. It doesn'tappear that ADT will employ high leverage in the near term. That said, there maybe strategic reasons to increase leverage in a manner that maximizes thelong-term value of ADT. Nevertheless, ADT is committed to a solid investmentgrade rating. Fitch will continually evaluate how management will balancedemands from its shareholders while maintaining its commitment to a stronginvestment grade profile.

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

Fitch believes that ADT's competitive position will remain strong in thenear-to-intermediate term. However, ADT faces competition from non-traditionalsecurity service providers. Several cable and telecom companies have introducedinteractive security services that compete with ADT. While the customer base ofthese companies is substantially smaller than ADT at the current time, thisemerging trend could provide significant competition for ADT going forward. Thepenetration rate for cable and internet providers is significantly higher(60%-85% range) compared to traditional security providers (20% range). Thisgives cable and telecom companies a larger customer base to which to selladditional product offerings and/or bundle services at perhaps more competitiveprices.

ADT is run by a well-seasoned management team led by Naren Gursahaney, whoserved as President of Tyco's ADT North American Residential business segmentprior to the spin-off. ADT also has leaders with extensive company and industryexperience.

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

ADT also entered into a Tax Sharing Agreement with Tyco and Pentair. Thisagreement will govern the rights, responsibilities and obligations of the threepost-separation companies regarding certain tax matters. The Tax SharingAgreement outlines each company's share of certain tax liabilities. Tyco will beresponsible for the first $500 million of shared tax liabilities. ADT andPentair will share 58% and 42%, respectively, of the next $225 million of sharedtax liabilities. Finally, ADT, Tyco and Pentair will share 27.5%, 52.5% and 20%,respectively, of shared tax liabilities above $725 million. As of June 29, 2012,Tyco has recorded a liability of $406 million related to these tax matters.

Future ratings and Outlooks will be influenced by broad economic trends, as wellas company-specific activity, particularly free cash flow trends and uses andliquidity position. Positive rating actions are unlikely in the near tointermediate term as Fitch evaluates ADT's performance and management'sfinancial strategy as a stand-alone company. On the other hand, Fitch mayconsider taking a negative rating action if there is meaningful deterioration inADT's financial results and management undertakes a more aggressive financialpolicy, leading to diminished liquidity, higher debt levels and credit metricsthat are significantly and consistently below Fitch's expectations.

Additional information is available at

'. Fitch hasconducted a Rating Assessment Service for the ADT Corporation. The ratings abovewere solicited by, or on behalf of, the issuer, and therefore, Fitch has beencompensated for the provision of the ratings.

Applicable Criteria and Related Research:--'Corporate Rating Methodology' (Aug. 8, 2012).Applicable Criteria and Related Research:Corporate Rating Methodology(New York Ratings Team)

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