The ADT Corporation -- Moody's lowers ADT's outlook to negative; affirms Baa2 sr unsec rating

Ratings affirmed:

Senior unsecured rating, Baa2

Short-term rating, Prime-2

RATINGS RATIONALE

"The negative ratings outlook reflects our concern that ADT's financial policies could continue to evolve to the detriment of debt holders", stated Moody's analyst Suzanne Wingo. ADT's willingness to accommodate activist shareholder demands with debt-funded share repurchases, shortly after the Tyco spin-off and the issuance of $2.5 billion of long term bonds in connection with that spin-off, was unexpected. Even so, the Board of Director's three-year / $2 billion share repurchase authorization represents a smaller return of equity and a more conservative capital structure than a shareholder-activist has demanded and we are concerned that ADT will face further pressure to boost near-term returns from current or other shareholders in the future. In addition, management could become distracted by activist-shareholders, particularly should they accelerate their campaign in a public forum, just at the time when management is setting standards for ADT as a new public company.

The Baa2 senior unsecured rating reflects the predictable, annuity-like revenue streams and cash generation provided by ADT's customer base of over 6 million subscribers. ADT is the clear leader in the fragmented alarm monitoring industry with about a 25% market share. However, competition from new entrants and evolving technology pose longer term risks.

The ratings could be lowered if cable and telecommunication competitors begin taking significant market share, having a negative impact on ADT's business, such that ADT's net attrition rate approaches 15%, debt / EBITDA is sustained above 2x, or debt / RMR exceeds 13x. Debt-financed acquisitions, additional changes in financial policies that favor shareholders to the detriment of creditors, or an acceleration of return of capital above the $1 billion targeted in FY13 could also lead to a downgrade. Conversely, the outlook could be stabilized within the next 18 months if management demonstrates a track record of limiting debt-funded share repurchases to a level that maintains debt/ EBITDA at or below 2 times. While not expected in the near-term, the ratings could be upgraded if ADT's revenue size were to grow significantly while maintaining particularly strong margins and a conservative capital structure, and competitive threats from new entrants ease.

The principal methodology used in rating ADT Corporation was the Global Business & Consumer Service Industry Methodology published in October 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Suzanne Wingo Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Robert Jankowitz Associate Managing Director Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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