(Bloomberg) ? Bermuda-registered Tyco International Ltd.'s debt rating was raised two levels to investment grade by Moody's Investors Service as chief executive officer Edward Breen's accelerated debt repayment helps fuel a turnaround.

The long-term debt ratings for Tyco, which has paid off more than $8 billion in obligations since 2002, were raised to Baa3, the lowest investment level, Moody's said in a statement.

Short-term ratings were raised to Prime-3. The move affects about $18 billion of securities and the outlook is stable.

The upgrade comes almost two years to the day after Moody's lowered the company's rating to below investment grade, or junk because of mounting debt obligations following more than $64 billion in acquisitions under L. Dennis Kozlowski, who was fired as CEO in June 2002.

"If you go back to the depths of despair of this company from a credit standpoint, it was early to mid '02," said Stephen Peacher, chief investment officer of Putnam Investments' high-yield team in Boston, which holds about $12 billion of junk-rated corporate bonds, including Tyco debt.

"These guys have done a great job of turning that credit around."

Last week, Standard & Poor's Corp. raised Tyco's ratings to BBB, its second-lowest investment grade a day before Tyco announced plans to make pension plan at least $500 million in pension contributions and that it may have some costs to repurchase convertible debt. Standard & Poor's never rated Tyco below investment grade.

Tyco, the world's biggest maker of electronic connectors and security systems through its ADT brand, had $17.7 billion in on- balance sheet debt and $3.1 billion in cash on hand as of March 31.

Breen previously has said he won't make any acquisitions this fiscal year ending September 30, and instead will use cash to cut debt.

Pension contributions will be made over the next six months, Tyco said.

In November, Breen said he would cut 7,200 jobs and sell more than 50 businesses with total revenue of $2.1 billion, or about 6 percent of annual sales.

Through March, Tyco had eliminated 4,100 jobs and sold ten businesses. Breen said last month that the company intends to pare debt to between $10 billion and $12 billion by the end of 2005.

A mistrial was declared last month in the trial of Kozlowski and former chief financial officer Mark Swartz, who had been accused of looting the company of $600 million through unauthorised bonuses and loans and by selling Tyco stock after inflating the price by misleading investors. No date has been set for a new trial.

"The rating actions reflect Tyco's improved operational performance and more sound financial condition following the actions taken by the new management team," George Meyers, Moody's senior credit officer and Michael Mulvaney, Moody's Managing Director, wrote in a statement.

Last week's announcement of pension funding and further debt reduction also helped fuel the upgrade, Moody's said.

The company, run from West Windsor, New Jersey and based in Bermuda, said it will keep a cash balance of at least $2 billion after the outlays. Breen and chief financial officer David FitzPatrick have said the company's long-term goal is to reach a single-A debt rating at both Moody's and S&P.

S&P analyst Joel Levington last week said that company's upgrade takes into consideration potential costs to settle shareholder lawsuits and a pending tax audit by the Internal Revenue Service. Those costs, which have not been broken out by Tyco, could be as much as $4 billion, Levington said. Tyco also remains under investigation by the US Securities and Exchange Commission for the way it accounted for acquisitions under Kozlowski.

Moody's didn't estimate a payout amount, though it said the outlook takes into account that free cash flow spending will take into account "sufficient liquidity for legacy litigation contingencies, the timing and scope of which remain uncertain."

Last month, Breen forecast $5.7 billion in cash flow from operations for the year ending in September. Free cash flow, or cash flow from operations minus capital expenditures, will be about $4 billion before pension contributions, he said.

"We're extremely pleased with Moody's upgrade," said Tyco spokesman David Polk. "We believe it reflects the significant progress towards improving the company's capital structure and liquidity profile."

Tyco said last week it may also incur charges if it buys back some of the $4.5 billion in convertible debt sold last year because Tyco stock is trading above the price at which the bonds can be converted. Tyco's pension plans were $1.9 billion underfunded as of September 30, 2003, the end of its fiscal year.

The repurchases, which may also include $738 million in accounts-receivable securitisation programmes, will be made either on the open market or in privately negotiated transactions, based on market conditions and other factors, Tyco said.

During his decade as chief executive, Kozlowski, 57, oversaw more than $64 billion in acquisitions.

Tyco now is also the second- biggest maker of disposable medical supplies behind Johnson & Johnson.

It's the world's biggest maker of industrial valves, plastic hangers and duct tape.

The company had net income of $979.6 million last year on sales of $36.8 billion.

It had a loss of $9.18 billion in 2002 because of costs to exit businesses and restatements, in part related to how it accounted for business at its ADT unit.

Shares of Tyco fell 19 cents to $30.82 in New York Stock Exchange composite trading. They have risen more than three-fold since Breen took over in July, 2002.