Qwest sells $1.1 billion in bonds
Proceeds to help telco refinance older high-interest debt
By Jeff Smith, Rocky Mountain News

November 4, 2005

Qwest Communications on Thursday said that it sold $1.1 billion of 20-year convertible bonds, a key element in its plan to refinance $3 billion of debt and shave annual interest costs by as much as $300 million.

The bonds carry a 3.50 percent interest rate, with the initial conversion price to cash or stock representing a 30 percent premium above Wednesday's $4.54 a share close.

The Denver telco plans to use its cash and the proceeds from the bond sale to buy back $3 billion of 13 percent to 14 percent interest debt.

Some analysts said the debt refinancing, if successful, could help Qwest turn a small profit in 2006.

Others still believe the telco, which is experiencing flat sales and declining local telephone business, will continue to post a loss.  Qwest lost $144 million in its recently reported third quarter.

The company's $400 million settlement this week of its largest class-action stockholder suit helped pave the way for the debt refinancing.  That's because Qwest is able to pay the settlement out of reserves rather than cash.

Qwest originally had planned to sell just $1 billion of bonds.

"We're pleased with the strong demand from fundamental investors that enabled us to upsize the convertible offer above our expectations to $1.1 billion," Qwest Chief Financial Officer Oren Shaffer said in a statement.

A Dow Jones columnist this week suggested the convertible bond offering wouldn't be attractive to mainstream money managers because of Qwest's challenges and that its success instead would hinge on participation by hedge fund investors.

But Shaffer's reference to fundamental investors indicates some if not most of the bond buyers were traditional institutional investors or fund managers.

For the second day in a row, Qwest shares were heavily traded, with nearly 50 million shares changing hands.


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