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Rating Action:

MOODY'S ASSIGNS B2 RATING TO QWEST'S BANK CREDIT FACILITY WHILE PLACING ALL QWEST'S RATINGS ON REVIEW FOR POSSIBLE UPGRADE

19 Oct 2005
MOODY'S ASSIGNS B2 RATING TO QWEST'S BANK CREDIT FACILITY WHILE PLACING ALL QWEST'S RATINGS ON REVIEW FOR POSSIBLE UPGRADE

Approximately $17 billion in rated debt affected.

New York, October 19, 2005 -- Moody's Investors Service has assigned a B2 rating to Qwest Services Corporation ("QSC") $750 million senior revolving credit facility maturing in 2010. The new bank facility, which may be increased by up to $500 million under certain circumstances, replaces QSC's existing $750 million revolving credit facility that was scheduled to mature in 2007. This transaction bolsters Qwest's already strong liquidity by extending the maturity of the company's primary source of backup liquidity. The new credit facility benefits from essentially the same security package and ranks equal with the previous revolving credit facility.

Moody's has also placed Qwest Communications International Inc.'s ("Qwest" or "QCII") B2 corporate family rating and the ratings at all other entities in the organization, including the recently assigned bank rating, on review for possible upgrade. Improvements in Moody's expectations for free cash flow in 2006 and 2007 have triggered this review. In particular, Qwest's ability to slow the cash burn at Qwest Communications Corp. ("QCC") and its ability to reduce consolidated leverage has exceeded Moody's expectations. Reduced losses in the long distance business offset softness in Qwest's incumbent wireline revenue due to access line erosion.

The following ratings are placed under review for possible upgrade as part of the rating action:

At QCII:

Corporate Family Rating -- B2

$2.575 billion senior unsecured notes - (guaranteed by QSC, secured by second lien on Qwest Corp. ("QC") stock, and contractually senior to other QC 2nd priority liens) -- B3

7.50% senior unsecured notes due 11/1/2008 (secured by second priority lien on QC stock) -- Caa1

10.875%, 9.47%, and 8.29% senior unsecured notes due 4/1/2007, 10/15/2007, and 2/1/2008 -- Caa2

At Qwest Capital Funding ("QCF"):

Senior unsecured long-term ratings -- Caa2

At QSC:

Senior secured bank facility -- B2

Senior subordinated notes (secured by junior lien on QC stock) -- Caa1

At QC:

Senior unsecured long-term ratings -- Ba3

Senior unsecured long-term ratings (former obligor: Northwestern Bell Telephone Co.) - Ba3

Senior unsecured long-term ratings (former obligor: Mountain States Telephone and Telegraph Co.) -- Ba3

As part of this rating action, Moody's also withdraws the rating on QSC's existing revolving credit facility, as it will be replaced with the new transaction.

The review will focus on: 1) Qwest's ability to sustain its recent trend of relatively stable revenues; 2) the profitability and cash flow generating capacity of Qwest's individual operating segments (QC, QCC, and Wireless) over the next few years; 3) the company's financial strategy to reduce its interest expense burden and simplify its capital structure, and, 4) the company's ability and willingness to continue to reduce leverage.

Moody's will also consider Qwest's long-term operating strategy, especially as it relates to network investment. To date, Qwest has generated considerable cash savings (and debt reduction) though significant cuts in capital spending. This strategy could continue to strengthen Qwest's credit profile only to the extent it leads to subsequent debt reduction because, over time, this strategy is likely to weaken the company's competitive position and cash flow generating capacity.

Finally, Moody's will consider the on-going Department of Justice ("DoJ") investigation and pending shareholder lawsuits. Even though these issues pose a considerable credit risk, the magnitude and timing of cash payments associated with this litigation may be manageable should recent operating trends and balance sheet strengthening continue.

Qwest is a RBOC and nationwide inter-exchange carrier (IXC) headquartered in Denver, CO.

New York
Dennis Saputo
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Julia Turner
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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