Fitch Affirms Level 3's Ratings Following Announced Debt Maturity Exchange.

CHICAGO -- Fitch has affirmed the 'CCC' issuer default rating (IDR), along with each individual issue rating assigned to Level 3 Communications, Inc. (Level 3) and Level 3 Financing, Inc., as outlined below. This rating action follows Level 3's announcement to exchange up to approximately $1.23 billion of 2008 debt maturities with new 2010 senior notes. Approximately $6 billion of debt as of Sept. 30, 2005, is affected by this rating action.

The affirmation reflects the company's high leverage, large amount of negative free cash flow, and large debt maturities starting 2010, pending a successful exchange, as well as the execution risk associated with changing its revenue mix from declining mature services to more growth-oriented services.

The announcement by Level 3 to pursue a debt exchange that will extend 2008 maturities to 2010 is a credit positive since it provides the company additional time to improve financial metrics prior to the need to refinance significant maturities. If the full $1.23 billion exchange is successful, the new maturity schedule for Level 3 will be $0 in 2006, $1 million in 2007, $61 million in 2008, $363 million in 2009, $2.9 billion in 2010, and $2.46 billion in 2011. The exchange also includes an early participation cash consideration that Fitch estimates at approximately $31 million if all targeted notes are tendered by Dec. 22, 2005. Including the base cash payment, the total potential cash consideration for the exchange is $84 million. In addition, the higher interest rate of the new notes would result in approximately $25 million in additional annual interest expense for Level 3, if the full $1.23 billion of notes are exchanged. As of third-quarter 2005, the company had approximately $1.3 billion of cash and marketable securities.

If the 2008 debt exchange is successful, the predominant credit concern for Level 3 will become its ability to significantly improve its free cash flow. The company has projected that negative free cash flow for full-year 2005 will range between $370 million and $395 million. Fitch expects that negative free cash flow should improve significantly for the company in 2006 due to lower capital spending, the completion of its pending acquisition of WilTel Communications Group, LLC (WilTel), and the scaling of growth services. Nevertheless, Fitch expects that the company will continue to produce negative free cash flow through 2007. Fitch expects that the company's current cash and marketable securities balance along with the $82.3 million of cash proceeds from the sale of its Structure subsidiary should fund all cash requirements including the $370 million cash component of the WilTel acquisition for Level 3 through at least 2008, with a successful completion of this $1.23 billion exchange.

Level 3's capital structure consists of a fully drawn $730 million secured term loan due 2011 and $500 million of senior unsecured notes at Level 3 Financing, as well as $3.84 billion of senior unsecured and $876 million of subordinated notes at Level 3, and a $70 million headquarters mortgage.

Fitch has affirmed the following ratings:

Level 3 Communications, Inc.

--Issuer default rating at 'CCC';

--Senior unsecured at 'CCC-/RR5';

--Subordinated at 'CC/RR6';

--Rating Outlook Stable.

Level 3 Financing, Inc.

--Issuer default rating at 'CCC';

--Senior secured term loan at 'B/RR1';

--Senior unsecured at 'B/RR1';

--Rating Outlook Stable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.