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Financial

Qwest Fights Back

Qwest Communications International Inc. (NYSE: Q) has decided that it's not going to go gently into that goodnight, thanks very much, choosing instead to rage, rage against the dying of the light.

The carrier ended a roller-coaster week by fighting back with a $1.5 billion bond offering today (see Qwest in Quest of $1.5B).

Qwest, already under pressure to get back on track in the wake of the telecom recession, was struck a blow Tuesday when Moody's Investors Service downgraded its debt to one level above "junk" status. The move had been dreaded by analysts who feared it would lead to further spending cuts industrywide (see Qwest Sees Light at End of the Tunnel).

Qwest executives moved into damage control mode Wednesday, reassuring investors on an impromptu conference call. "I don't know what drove Moody's to do what they did," said CEO Joseph Nacchio. "I'm sure they did an honest assessment, but I don't agree with it."

Nacchio pointed out that the other leading ratings services, Standard & Poors and Fitch Inc. did not downgrade the debt. "I told Moody's exactly the same information I told Standard and Poors. They were skeptical for some set of reasons I can't explain."

Today's news went down better on Wall Street. "Getting this deal done definitely improves their debt position," says Cary S. Robinson, senior research analyst at U.S. Bancorp Piper Jaffray. He says Qwest is in a good position now to deal with its other two key issues -- renegotiating its credit and cutting its debt by selling non-core assets.

Qwest says it's working on both. "We are working with the appropriate sense of urgency to amend our bank facility, and we are working on a number of parallel actions that will... provide liquidity to the company," says CFO Robin Szeliga.

Nacchio said yesterday that negotiations to sell unspecified assets are proceeding to the point that the bankers are now involved. The company has scheduled another conference call with analysts Tuesday.

Will all this ensure Qwest's successful emergence from the telecom woods? Cary Robinson thinks so. "They're by no means in dire straits," he says. "They have significant flexibility. They could sell their directory business for $8 billion, for Pete's sake."

Robinson says he's confident Qwest will be able to renegotiate its credit and he's doubtful its debt will be rated any lower. He says Moody's downgrade Tuesday may have been a reaction to the firm's having let Enron slip under its radar.

Others aren't so sure of Qwest's ultimate triumph. Chris Bulkey, research analyst for the Optical Oracle, Light Reading's subscription service, feels several things about Qwest's financials raise flags, including its accounting relative to non-recurring revenue contributors such as equipment sales and swap transactions, its investment writedowns, and operating weakness in its US West subsidiary.

Bottom line? "We thought that Qwest had an enviable position," Bulkey says. "Now Qwest's borrowing costs are clearly on the rise."

Qwest's share price this week reflected its ups and downs: After closing at $9.15 Monday and dropping to $8.85 Tuesday, it rose to $10.08 Wednesday, then dropped to $9.82 Thursday. As this went to press late Friday afternoon, shares were at $9.65, down $0.17 (1.73%).

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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