Level 3 Scores Credit Downgrades (LVLT)

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Level 3 Communications Inc. (NASDAQ: LVLT) has just seen another negative development, this time from Standard & Poor’s Ratings Services.  S&P lowered its corporate credit rating Level 3 to ‘CC’ from ‘B-‘ and it lowered the issue-level ratings on Level 3’s 6% convertible subordinated notes due 2009, the 6% convertible subordinated notes due 2010, and the 2.875% convertible senior notes due 2010 to ‘C’ from ‘CCC’.   Unfortunately, it only gets worse from there.

And just like a late night infomercial, "But wait Bob, there’s more." 

S&P has also placed these ratings on CreditWatch with negative implications after the company’s announcement of below par cash tender offers for the three debt issues.

S&P said it would lower the affected note ratings down to ‘D’ upon a successful completion of the tender offers.  S&P said it would also initially lower the corporate credit rating to ‘SD’ for selective default before assigning a new corporate credit rating of ‘B-‘ to the company.

Lastly, S&P placed the ratings on Level 3 and its wholly owned subsidiary, Level 3 Financing, other debt issues, including its $1.4 billion term loan, on CreditWatch with negative implications.

S&P said that the reason for the CreditWatch placement is that S&P will need to evaluate the credit impact of alternative efforts to refinance problematic 2010 maturities if the proposed tender offer is not consummated.

This comes one day after a $400 million capital commitment to buyback some of its debt instruments, which initially took shares higher.  Many believe that this capital raise sent a signal that the company could raise cash at a time when many felt it could not raise cash.

Unfortunately Level 3 is now below the $1.00 hurdle after closing at $0.90 today.  Its 52-week trading range is $0.60 to $4.48. 

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Jon C. Ogg
November 18, 2008