Level 3 Scores Credit Downgrades (LVLT)

November 18, 2008 by Douglas A. McIntyre

Level_3_logo_3 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. 

You can join our open email distribution list to hear about other reorganizations, debt issuance, recapitalization, secondary offerings, IPO’s, Warren Buffett activities, and subscriber newsletter previews.

Jon C. Ogg
November 18, 2008