S&P Downgrades Qwest Following Debt Exchange Offer

Standard & Poor’s on Wednesday lowered its credit rating on Qwest Communications International Inc. after the phone giant announced a $12.9 billion debt exchange offer aimed to avoid a cash crunch.

The debt exchange offer, which closes at 11:59 p.m. (EST) Dec. 20, is aimed to extend the date of maturities due in the next few years and eradicate up to 20 percent of the face value of the current debt.

Qwest could reduce its debt by around $2.5 billion if all qualified bondholders accept the exchange offer, according to credit-rating agency, Moody’s, which placed its ratings on Qwest on review for downgrade.

Denver-based Qwest recently closed an agreement to sell a part of its lucrative phone-directory business, but the second phase of the sale is still pending and the carrier said last week in a regulatory filing it still could have trouble meeting its debt obligations through 2005.

“Despite the anticipated reduction in debt and lengthening of some maturities, the amounts involved are not that material relative to the company’s total financial burden and overall maturities through 2005,” wrote S&P credit analyst Catherine Cosentino, noting that the rating action affects about half of Qwest’s $26 billion in debt as of Sept. 30.

The analyst also cited worries over the federal investigations surrounding Qwest’s accounting practices “and the fact that near-term liquidity still remains a source of concern to Standard & Poor’s particularly if the $4.3 billion second phase of the company’s directories sales is delayed beyond 2003.”

Moody’s placed its ratings of Qwest on review for downgrade pending completion of the debt exchange, completion of the company’s financial structure and an examination of its financial statements.