Fitch Rates Level 3 Financing's $600MM Sr. Notes 'B/RR1'; Affirms IDR at 'CCC'; Outlook Positive.CHICAGO -- Fitch assigns a rating of 'B/RR1' to Level 3 Financing, Inc.'s issuance of $600 million of 9.25% senior notes due 2014. In addition, Fitch affirms the 'CCC' Issuer Default Rating (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) and each issue rating for Level 3 Communications
Level 3 Communications NASDAQ: LVLT is a communications and information services company headquartered in Broomfield, Colorado, USA. , Inc. (Nasdaq: LVLT LVLT Level 3 Communications, Inc. (stock abbreviation, AMEX) ) (Level 3) and Level 3 Financing, Inc. The Rating Outlook is Positive. The Positive Rating Outlook continues to reflect Fitch's belief that the company's acquisitions, including the recently announced Broadwing Corporation Broadwing Corporation is a data, voice, and media solutions company based in Austin, Texas, USA. Enabled by its 20,000-mile All-Optical-Network and 20 nation-wide HDTV transmitting and delivering centers, Broadwing Communications provides communications solutions and (Broadwing) acquisition, gives Level 3 a firm path, if successfully integrated, toward de-leveraging its credit profile and achieving positive free cash flow in 2008. The timing of an upgrade of Level 3's IDR is linked to the company's ability to improve free cash flow, materially reduce leverage, generate positive organic revenue growth and improve margins. Additionally, the company will need to maintain liquidity and financial flexibility. The new notes will constitute purchase money indebtedness under the indentures of Level 3. The net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). can be used for acquisitions or expansion of the company's infrastructure. With this offering, the company will have a fully drawn $730 million secured term loan facility due 2011 as well as $1.8 billion of senior unsecured notes at Level 3 Financing. Fitch expects that the proceeds from this new offering will be in part used for the company's acquisition of Broadwing. The total cash requirement in this transaction is $744 million, but only $394 million when netted against second quarter 2006 outstanding cash at Broadwing. The Broadwing acquisition is expected to close in first quarter 2007. Level 3 continues to maintain strong liquidity and finished third quarter 2006 with $731 million of cash and $509 million of marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has . Level 3's current maturity schedule is $2 million in 2007, $138 million in 2008 and $362 million in 2009. Level 3's third quarter earnings results showed strong year-over-year revenue and operating EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become growth in core communications services due to both organic growth as well as contributions from acquisitions. Integration and capital expenditures are expected to remain high for the next couple of years, but with a steady trend of strengthening operating and free cash flow. Gross margins continued to strengthen in the third quarter reaching 57% and this trend should continue as the low margin SBC (1) (SBC Communications Inc., San Antonio, TX, www.sbc.com) A large, national telecommunications company that grew from a multitude of local and regional companies, including Southwestern Bell, Pacific Bell and Nevada Bell, into a single, unified brand by 2002. contract contribution continues to reduce and acquisitions are integrated. Fitch believes that acquisition activity at Level 3 will be curtailed due to the outstanding amount of integration effort which is currently present. Fitch also expects that Level 3 could take advantage of opportunities to reduce interest expense in order to strengthen its credit profile on a going forward basis. Opportunities to reduce interest expense could include the ability to convert debt to equity, which is present at $1.2 billion of senior convertible notes that can convert at less than $4 per share. The company also has the ability to call over $600 million of high coupon debt due in 2010, in March 2007. The following ratings are affirmed with a Positive Outlook: Level 3 Communications, Inc. --IDR 'CCC'; --Senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. 'CCC-/RR5'; --Subordinated debt 'CC/RR6'. Level 3 Financing, Inc.: --IDR 'CCC'; --Senior secured term loan 'B/RR1'; --Senior unsecured debt 'B/RR1'. Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at http://www.fitchratings.com/recovery. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. 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 Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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