Berkshire Hathaway Inc., billionaire Warren Buffett's investing company, has dumped some 18,232,565 shares of Level 3 stock in the past several months, according the company's SEC filings.Level 3 Communications Inc. (Nasdaq: LVLT) shares fell hard on the news -- dropping $0.37 (6.57%) to $5.26 in trading on Thursday.Buffett and pals first invested in Level 3 last summer. The carrier sold junior convertible subordinated notes, due 2012, to three investors: Longleaf Partners bought $300 million of the convertible notes; Berkshire Hathaway bought $100 million; and Legg Mason Inc. bought $100 million.The notes mature in 10 years and pay 9 percent interest. And, evidently, Buffett's crew converted many of the notes into common stock at a price of $3.41 a share.

At the time the investment was made, Wall Street was lukewarm on the move. It liked the fact that Buffett, a technophobe famous for buying into household names, was putting bucks into a hobbling telecom horse like Level 3. However, some were skeptical that Buffett buddy Walter Scott, Level 3's chairman, who is also on the board of Buffett's Berkshire Hathaway, was just looking to move money from one pocket to the other.Also, investors wanted to see how confident Buffett and the other investors were in Level 3's long-term prospects. "If [the investors] converted the shares quickly and held on to the stock, I'd be pretty happy about that," said Crédit Lyonnais Securities Inc. telecom analyst Rick Grubbs, in June 2002.One year after the original investment, all three investors converted all of their outstanding notes into Level 3 shares. The conversion knocked about $457 million off Level 3's long-term debt. The carrier issued about 161 million shares of stock, in aggregate, to the three investors in connection with the conversion.But shortly after the conversion, Berkshire Hathaway began chunking Level 3 shares out the window.Through deals such as the one it swung with Berkshire Hathaway, Level 3 continues to make improvements in its capital structure. However, analysts say it still has an awful lot of debt. Level 3's net debt at the end of the third quarter was $4.8 billion, giving it more than 8 times more debt than it has assets -- or, a leverage ratio of 8.4x, according to an October note by Merrill Lynch & Co. Inc. analyst Adam Quinton. "While we remain encouraged by further financial restructuring efforts, we remain concerned about additional potential dilution to equity holders," writes Quinton. — Phil Harvey, Senior Editor, Light Reading