NEW YORK ? Turning Tyco International Ltd.'s operations around is taking longer than some investors had hoped, but the reshaping of its balance sheet continues.

Since its spectacular fall from grace in 2002, Tyco, which operates health care, fire and security, electronics and plastics businesses, has been trying to clean up its balance sheet and get a decent credit rating.

The Bermuda-based company spent about $2.5 billion in the past year repurchasing debt convertible into equity with a face value of about $1.6 billion. It has cut debt to about $13.1 billion ? some $2.35 billion of which is convertible to stock ? from around $16.7 billion in September last year, according to company filings.

The result: Standard & Poor's has raised Tyco's credit rating to triple-B-plus from triple-B with a positive outlook. The company's now one notch away from the A rating it craves, and the outlook is positive, S&P credit analyst Joel Levington said, meaning a further upgrade could come in the next 18 months.

This boost came despite operational stumbles. The S&P upgrade this month was just a day after Tyco lowered its 2005 earnings view, blaming higher costs for materials like steel and weak European markets. The stock fell, and analyst downgrades followed.

Tyco expects to buy back more convertibles, but at a slower pace ? about $500 million over the next three quarters. Changing tack somewhat, the company's board added a $1.5 billion stock repurchase plan to run over the same period.

The buybacks should raise Tyco's earnings by 8 cents a share in 2006, UBS analyst David Bluestein said. That likely means Tyco's forecast of ten percent earnings growth over 2005, or about 18 cents a share, is too conservative, he said.

Sheri Woodruff, a Tyco spokeswoman, said the company was committed to building shareholder value through buybacks. Tyco expects to generate loads of cash. The company's reduced projections put free cash flow at $4.2 billion to $4.6 billion for the full 2005 fiscal year.

The convertible buybacks Tyco has already completed this fiscal year lowered Tyco's diluted share count by about 76 million shares. Chief executive Edward Breen said in a recent conference call that Tyco stock was a "screaming buy". Despite this improved balance sheet, Tyco's stock is near the 52-week low of $26.97 hit August 5, after the recent changed outlook. The shares closed Wednesday at $28.27 on the New York Stock Exchange.

The stock got a lift last week from news that a unit of Warren Buffett's Berkshire Hathaway Inc. picked up 5 million Tyco shares in June.

S&P's Levington said the convertible buybacks have been "modestly favourable". Also, sticking with buybacks, as opposed to increasing its dividend, gives Tyco more flexibility, he said, should it face some large one-time liabilities, such as costs for shareholder litigation now pending against the company.

One scholar, who has studied Tyco and its convertible issuance, thinks the company has another motivation.

Christine Wiedman, an accounting professor at the University of Western Ontario, notes that Tyco's series A convertible debentures carry an option to sell them back to the company in January 2008, with each $1,000 in principal amount of the bonds getting 43.89 Tyco shares plus interest.

With that put option looming, "they're being forced to buy back these bonds", she said.

Woodruff said the put options didn't have a bearing on the company's decision to repurchase the bonds.

Regardless of the reasoning, Fitch Ratings analyst Eric Ause said Tyco's efforts to clean up its balance sheet haven't been at the expense of its operations. They've been putting money into the sales force for fire and security and cutting excess in other businesses, he said.

Tyco's capital expenditures for the first three quarters of its fiscal year were $935 million, up from $673 million for the same period in fiscal 2004, SEC filings showed.