Moody's Downgrades Qwest

Moody's says QSC's $3.3B of senior subordinated notes are 'not rated,' downgrades QCF's senior unsecured rating to Caa2 from Caa1

December 26, 2002

1 Min Read

NEW YORK -- Moody's has assigned a NR (not rated) to Qwest Services Corporation's ("QSC") $3.3 billion of senior subordinated notes, due 2007, 2010 and 2014. Moody's also downgraded the senior unsecured rating of Qwest Capital Funding ("QCF") to Caa2 from Caa1. All Qwest ratings, which also include Qwest Communications International ("QCI," sr. unsec. Caa1), Qwest Corporation ("Corp.," sr. unsec. Ba3), and Qwest Communications Corporation ("QCC," sr. unsec. Caa1) remain on review for possible further downgrade. Moody's assigned QSC a NR rating because Qwest has yet to provide audited, stand alone QSC financials. QCF's senior unsecured rating was lowered to Caa2 from Caa1 for the following reasons:
1.) structural subordination of the remaining $7.7 billion of notes to $4.4 billion of new debt-- $3.3 billion of senior subordinated QSC notes and $1.05 billion of existing senior unsecured QCI bonds, which now benefit from a subordinated upstream guarantee from QSC-- and
2.) the continued risk of impairment resulting from future free cash flow generation and the ability of Corp. and QSC to make distributions to QCF when subsidiary debt service requirements are so significant.All Qwest ratings will remain on review for downgrade until:
1.) audited financials are filed for all debt issuing legal entities;
2.) both SEC and Department of Justice investigations are resolved;
3.) contingent liabilities resulting from shareholder and stakeholder lawsuits can be reasonably assessed; and
4.) the company demonstrates that it can sustain sufficient free cash generation to service all its debt and generate a meaningful return on assets. Moody's Investors ServiceQwest Communications International Inc.

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