Once again,

Tyco

(TYCO)

investors were buying the company's story on Friday.

Recently, the stock was trading up 17 cents, or 1.27%, at $13.95, after opening down $1.15, or 9%, at $12.65, following a

Wall Street Journal

article that said Tyco's new chief executive, John Fort, was an active investor in a buyout fund that acquired its flow-control division for $810 million in 1999.

On a conference call Friday, executives from Tyco, which until recently topped analysts' stock pick lists, said that the investigation into issues related to its former chief executive officer, Dennis Kozlowski, did not spill over to the rest of the company, which was healthy despite its corporate credit ratings.

"We realize our ratings are not based on fundamentals of the business, but based on activities at the corporate levels over the last few weeks," said Mark Swartz, Tyco's chief financial officer, on the call. "When you look at the health of the business and its franchises, it deserves to be at a higher rating."

Currently, Standard & Poor's gives Tyco's corporate credit the lowest investment grade level possible, while Moody's Investor Service and Fitch both put it at junk status.

Around the end of the call, which came two days after Tyco got

SEC

approval for an IPO offering of its financial services unit, CIT Group, its stock was up 83 cents, or 6%, at $14.63 -- its highest level of the session. Traders attributed the stock's recent falloff to afternoon profit-taking.

"If you are a holder of the stock, you want to believe what the company is telling you," said Tom Schrader, a trader at Legg Mason. "In this case, buyers believe Tyco rather than the stories about it."

Swartz, who appeared extremely upbeat on the call, emphasized Tyco's improved cash-flow position.

"With the CIT offering under way, we believe that we will have over the next six months $10 billion in cash to pay down debt," said Swartz, "bringing the debt balance to $17 billion from $27 billion."

Tyco also said it wasn't changing fourth-quarter earnings guidance, although it was reviewing the situation. Last week, the company confirmed its forecasts for the third quarter.

In the past few months, a series of debt downgrades as well as concerns about Tyco's accounting have hammered the stock. It's off about 80% this year and fell to a six-year low of $8.25 on Wednesday.

"We saw capitulation in the stock at $8.25 on Wednesday," said David Memmott, head of listed block trading at Morgan Stanley. "Since then, the value guys have been saying that the worst is over."

Schrader points out that if you bought the stock on Wednesday, you are looking golden. Risk-tolerant investors who jumped into Tyco have gained $5.78, or 70%, since Wednesday.

Still, there are many unanswered questions at Tyco and doubts that its CIT offering will go through. For one thing, IPOs need buyers, and some worry that they won't materialize in sufficient number to guarantee the kind of price Tyco is looking for.

Also, Tyco's $4.5 billion second-quarter preliminary goodwill impairment charge ups its leverage from 45% to 49%, bringing it closer to violating its bank leverage covenant limit of 52.5%.

Nevertheless, Swartz said Tyco was not in danger of violating its debt agreements.

"If we end up monetizing CIT in the first week of July but write down the assets in the June quarter, we could write them down below $2 billion -- which we do not think will happen -- and still be below 52.5%

bank covenant limit," said Swartz. "We are not facing an issue related to our debt covenant."

At least temporarily, value investors were buying the story and hoping the risk will pay off.

"Enron was an example of that not working," said Schrader. "But people don't think Tyco is Enron."