NEW YORK (Reuters) - Embattled Bermuda-based conglomerate Tyco International Ltd.'s troubles worsened yesterday, as Standard & Poor's cut its debt ratings on concerns that it may have difficulty raising cash as its bond spreads widen and its stock price drops.

The move by S&P, followed by a similar action from Fitch Ratings, was triggered by Tyco's announcement earlier in the day that it plans to tap $5.9 billion of credit lines to pay off $4.5 billion of debt.

Also yesterday, Tyco's financing arm, Tyco Capital, said it was taking several steps to distance its operations from those of Tyco International as a whole. In addition to reverting to its original name of CIT, the unit said it would restrict the purchase of assets from Tyco and prohibit loans and dividend payments to the company.

Albert Gamper, Tyco Capital's chief executive, conceded during a conference call that the credit market for Tyco Capital has grown tight and restrictive. Shares of Tyco, which has been trying to assuage investor fears about its accounting and corporate ethics in the fallout from the Enron Corp. scandal, fell $6.96, or nearly 19 percent, to close at $29.90, almost half the price at the start of the year. About 55 million Tyco shares exchanged hands as the volume leader on the New York Stock Exchange. Nearly $57 billion in shareholder value has been erased since December 31.

S&P cut several ratings for Tyco and its finance arm, Tyco Capital, and may change the ratings again, but said the conglomerate has answered questions about its accounting practices to its satisfaction.

"They now have a significant amount of debt due next year," said Thomas Kelly, an S&P managing director of industrials, in a conference call.

"We just don't believe the company should be in the `A' category when it has to draw down on its bank lines that are there simply to backstop CP (commercial paper) programmes."

"The S&P downgrade is definitely a disappointment, and might slightly increase some of their borrowing costs going forward, but I think the company has plenty of liquidity," said Steve Fossel, a portfolio manager at the Berger Funds in Denver.

"I don't think we have a liquidity risk at all, but whenever you have a downgrade you have to take note of it," he said.

Tyco's bonds also slumped amid widening scepticism about how the maker of everything from burglar alarms to plastic hangers accounted for a massive series of acquisitions. Investors were also worried about implications of the plan to dip into a line of credit to repurchase $4.5 billion of debt. The concerns were heightened yesterday when Tyco confirmed it spent $8 billion on more than 700 acquisitions in the past three years that it did not separately announce to the public. The revelation was first disclosed in yesterday's The Wall Street Journal.

"It's the wrong time of day not to be open about disclosures," said Albert Meyer, an analyst for David W. Tice & Associates, whose Prudent Bear Fund is a prominent short-seller of Tyco stock.

"Being in the post-Enron environment you cannot disclose enough these days."

Short-sellers such as Prudent Bear make money when a stock goes down by selling borrowed shares and replacing them at a cheaper price. S&P cut Tyco's senior unsecured debt rating three notches to `BBB', an investment grade two notches above `junk' status, from `A'.

Tyco has come under scrutiny because of its complex operations, heavy reliance on acquisitions and, in the past, accounting practices that were investigated by the Securities and Exchange Commission. No action was taken in that probe.

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There have also been questions about whether the payment of $20 million to independent director Frank Walsh and a charity of which he was a trustee was a sign of loose corporate ethics.

And the company's announcement last month that it intended to split into four parts was seen as a sudden U-turn in strategy from a company that has used hundreds of acquisitions over the last decade to build a single conglomerate and boost earnings growth.

Tyco's 6.75 percent notes maturing in 2011 were bid yesterday afternoon near 86 cents on the dollar, after falling as low as 83 cents earlier, traders said. The yield is about 9.16 percent, or 4.25 percentage points more than ten-year US Treasuries.

Still, Wall Street analysts remain mostly backers of Tyco, even as investors grow increasingly skittish about its prospects. In a research note yesterday Merrill Lynch analyst Phua Young recommended the purchase of Tyco and maintained his $80 price target.

"If we issued a release on every little acquisition we did, we'd be doing a new release every day of the week," Tyco spokeswoman Maryanne Kane said.

Tyco spokesman Brad McGee said that 90 percent of the acquisitions in question were for less than $50 million dollars, small for a company which had $36 billion in revenue in 2001.