Qwest files with SEC for right to restructure
By Ross Wehner, Staff Writer
Denver Post
Thursday, August 4, 2005

Denver-based Qwest registered with the Securities and Exchange Commission late Wednesday for the future right to sell $2.5 billion of new debt, stock or other types of hybrid securities.

Two analysts took the shelf filing as evidence that Qwest may issue new equity as a way to reduce its $14.7 billion in debt, a strategy hinted at by Qwest chief executive Richard Notebaert.

"We will continue to evaluate opportunities to utilize equity to improve our capital structure, but only, and I mean only, if it makes sense for our equity holders," Notebaert said during a second-quarter earnings call with analysts Tuesday.

The filing leaves Qwest's options open and positions it for a quick securities sale.  The size, price and type of sale would be determined in the future by Qwest, the nation's fourth-largest local phone company.

"This could be the first step in a debt-for-stock exchange, but it does not commit them to do anything in particular," said independent telecom analyst Tom Friedberg.

"Debt is one of Qwest's biggest problems."

Qwest's high debt places it at a disadvantage as it prepares to compete against new cable and wireless competitors, and soon-to-be-merged telecom behemoths like SBC-AT&T, Verizon-MCI and Sprint-Nextel.

Qwest spokesman Bob Toevs on Wednesday downplayed the importance of the SEC filing.

"It's an ordinary course-of-business event," he said. "Shelf registrations permit great financing flexibility and allow issuers to access capital markets at opportune moments."

New equity could be issued to buy back debt from current bond owners, but it would also dilute the holdings of Qwest's current share owners.  Qwest would have to offer both an attractive dividend and price to bondholders, who are used to a fixed annual yield.

Another option, said Janco Partners analyst Donna Jaegers, is a convertible debt offering.  Purchasers receive a fixed yield like a normal bond.  But if the share price rises a certain amount, typically 25 percent, purchasers can exchange the debt for stock at a predetermined price.

Such convertible offerings are usually sold to hedge funds, which lock in gains by simultaneously shorting a company's stock.  "That depresses the stock in the near term," Jaegers said.

Qwest's SEC filing described a broad range of securities, including "hybrid securities that combine certain features of debt securities and other securities."

Qwest also said in the filing that it could use the proceeds for debt reduction or refinancing, capital investments, working capital and possible acquisitions.

"This is a step in the right direction in terms of Qwest getting out of that hole," Jaegers said.

Staff writer Ross Wehner can be reached at 303-820-1503 or rwehner@denverpost.com.