The once-sordid tale of

Tyco

(TYC)

now looks destined for a happy ending.

The company long ago stopped wasting money on lavish birthday parties and home furnishings. Increasingly, it has focused instead on paying off its bills. As a result, the newly responsible Tyco has emerged with a solid investment-grade credit rating and the means to grow even stronger.

Indeed, Tyco -- now led by Ed Breen's conservative management team -- has just promised to further strengthen its balance sheet on the heels of a credit upgrade that's already rewarding the company's progress so far.

"Our continued strong cash-flow generation enables us to accelerate the repayment of debt and make significant contributions to our pension plans," Breen explained on Thursday. "We remain committed to a solid investment-grade capital structure and believe that these actions will support this goal."

The company promised to use a "significant portion" of its cash to reduce its debt load and bolster its under-funded pension plan over the next few quarters. It expects to incur some charges in the process, however, as it repurchases convertible securities that have risen in value along with the company's share price.

Tyco's stock -- which has more than tripled in two years -- rose another 1.5% to $30.41 on Thursday.

New Chapter

Tyco rolled out its latest plans a day after Standard & Poor's raised the company's credit rating from BBB-minus -- just one notch above junk -- to a safer BBB.

S&P based its upgrade on Tyco's "substantial recent and prospective improvement" in its capital structure and free cash flow. The rating agency's outlook on Tyco's credit is now positive.

S&P applauded the company's performance -- and potential -- under the current management team.

"In sharp contrast to prior management, Tyco's strategy for the next couple of years is expected to be primarily focused on internal growth," S&P wrote on Wednesday. "These actions ... should enable Tyco to generate meaningful free cash flow in the $3 billion to $4 billion range annually and gradually strengthen its earnings -- even without meaningful pickup in end markets."

S&P went on to say that it has already incorporated substantial liabilities, totaling $4 billion, into Tyco's credit rating. The company faces potentially large payments for settling shareholder lawsuits and government disputes related to its past behavior.

"Tyco faces considerable contingent liabilities from many sources," noted Peter Cohan, a Massachusetts investment strategist with no position in the stock. "I don't think Tyco is out of the woods yet, but I do believe that current management is managing a classic turnaround."

In contrast, past management -- led by former CEO Dennis Kozlowski -- has been accused of looting the company and nearly leaving it in ruins. Prudential analyst Nicholas Heymann, who remained bearish on Tyco longer than most, this month expressed awe at the turnaround. At the height of its glory days, Tyco -- powered largely by acquisitions -- traded for $60 a share. The peak came just ahead of a sickening plunge into the mid-single digits two years ago as Breen prepared to take over.

"Every once in a while, things seem to come together so well for companies that you find it hard to believe," wrote Heymann, who has an overweight rating and $35 target price on Tyco's stock.

"It's almost like a film of 'Humpty Dumpty' in reverse," Heymann added. "All the pieces of Tyco's dramatic past problems are not only coming back together, but the resulting company is actually well-positioned to soon be performing better than the best days of the company's prior peak performance."