Qwest Gets a Reprieve
Investors, who have shown weak support for Qwest and other large service providers recently, rewarded the company’s efforts by pushing its stock up $0.64 (7.37%) to $9.32 in midday trading.
But Qwest still has several challenges ahead. For one, just last week, the Securities and Exchange Commission (SEC) began a preliminary inquiry into the company’s accounting practices (see Qwest Prepared to Answer Feds). Qwest also faces a slim revenue outlook. Still, company officials insist it will pull through, expecting positive cash flow in the second quarter of this year.
Last month Qwest, was forced to use up its $4 billion backup line of credit after being shut out of the short-term debt market (see Qwest Sees Light at End of the Tunnel). The carrier used $608 million in proceeds from a recent $1.5 billion sale of senior notes to pay down some of that $4 billion debt, but it still owes about $3.4 billion (see Qwest Fights Back ).
Under today’s amended bank credit agreement, Qwest is allowed a maximum debt-to-cash-flow ratio of 4.25 through Sept. 30. But it must lower that ratio to 4.0 over the following two quarters. Previously, the allowable ratio was 3.75.
Qwest still needs to reduce its debt further and will likely need to sell off assets in order to do that. Analysts expect the company to sell its DEX telephone directory publishing unit, as well as local telephone lines and wireless assets, in the near future. But with many service providers like Global Crossing Ltd. (NYSE: GX) and McLeodUSA (Nasdaq: MCLD) in bankruptcy and a slew of others like Williams Communications Group (NYSE: WCG) and Level 3 Communications Inc. (Nasdaq: LVLT) also trying to sell off assets to clean up their balance sheets, it may be difficult to get top dollar (see Global Crossing Falls Overboard, Williams Ponders Bankruptcy, and Is Level 3 Next?).
Qwest has agreed to use a portion of the proceeds from future asset sales and capital market transactions to repay the bank debt until the outstanding loan is $2 billion or less, according to the press release.
— Marguerite Reardon, Senior Editor, Light Reading