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Announcement:

Moody's affirms CenturyLink Baa3 after plan to acquire Savvis; outlook negative

27 Apr 2011

Savvis ratings placed on review for upgrade

New York, April 27, 2011 -- Moody's Investors Service has affirmed its Baa3 senior unsecured long term and Prime-3 short term debt ratings for CenturyLink, Inc. ("CenturyLink") following the announcement of a definitive agreement to purchase Savvis, Inc. ("Savvis") for $3.1 billion in a predominately cash transaction. However, we have changed CenturyLink's outlook to negative from stable to reflect the increase in leverage and heightened operational complexity associated with this latest acquisition.

Moody's has also placed the ratings of Savvis on review for possible upgrade.

RATING RATIONALE

The affirmation of CenturyLink's ratings reflects Moody's view that this transaction will improve the competitive position of CenturyLink but reduce the company's financial flexibility. "The addition of Savvis's assets to those of the former Qwest enterprise business will propel CenturyLink forward to a stronger competitive position," commented Moody's Senior Vice President Dennis Saputo. "CenturyLink's plans to operate Savvis as its own business unit reduces the integration challenge for this deal, however, another transaction on the heels of the Qwest deal increases an already high degree of execution risk," Saputo continued.

CenturyLink is undertaking a significant operational effort to integrate the assets acquired through its recently closed merger with Qwest. The successful achievement of network, billing, operations, maintenance and management integration, including the cost savings targeted, are a key component of the current rating. Moody's investment grade rating incorporates our view that CenturyLink will remain focused on operations and limit additional M&A activity until leverage is well under 3.0x. Any delay in or reduction of the financial benefits expected from the Qwest merger or another transaction that further increases leverage would have negative ratings implications.

While Savvis is one of the leading providers in the still fast growing data center space, its focus on managed services is relatively capital intensive and a large portion of its revenues (about 30%) come from network services, a business that faces the secular pressure of declining pricing. Furthermore, competition is increasing as supply catches up with rising demand. Nevertheless, we believe that CenturyLink's acquisition of Savvis is a sound strategic decision that presents CenturyLink with the opportunity to stabilize its revenue trends and leverage its newly acquired national network and enterprise relationships.

Moody's anticipates that the combined company will have total debt (Moody's adjusted) of approximately $26 billion and proforma leverage of about 3.3x at year-end 2011, up from the 3.0x previously expected following the close of the Qwest deal. Moody's could downgrade CenturyLink's rating if the Company's operating performance deteriorates and its EBITDA continues to decline, such that it is unable to sustain financial leverage (Total debt-to-EBITDA, Moody's adjusted) of less than 3.0x and if the free cash flow generation falls into low single digit percent of total debt, both on a sustained basis. Moody's believes that a sustained decline in EBITDA (excluding one-time items) exceeding a rate of 3% could put enormous pressure on CenturyLink's ability to repay debt while continuing to return cash to shareholders, stay competitive and maintain leverage consistent with an investment grade rating.

While unlikely given management's leverage target, Moody's could raise CenturyLink's ratings if the company can grow revenues, EBITDA and cash flow, while sustaining debt to EBITDA below 2.5x and FCF to debt above 10%. The rating outlook could be stabilized if the company achieves the synergies it has targeted from both acquisitions faster than we currently expect while reducing leverage beyond current expectations.

The review of Savvis's ratings will focus on CenturyLinks's plans with regard to the existing Savvis debt. Moody's believes that it is highly likely that CenturyLink will choose to refinance Savvis's debt given its high-cost. However, should CenturyLink choose to maintain Savvis's debt without unconditional and irrevocable support, Savvis's ratings are likely to be notched up modestly from their existing levels, provided sufficient stand-alone financial information on Savvis continues to be available. If CenturyLink does not provide either an unconditional and irrevocable guarantee of the assumed Savvis debt or sufficient financial information for the rated issuers to allow the agency to form an opinion regarding their standalone creditworthiness Savvis's ratings will be withdrawn.

Moody's has taken the following rating actions:

.Issuer: CenturyLink, Inc

..Senior Unsecured - Baa3 (unchanged)

..Short Term Rating - P3 (unch.)

..Outlook -- Negative from Stable

.Issuer: Qwest Communications Int'l. Inc. (QCII)

..Senior Unsecured -- Baa3 (unch.)

..Outlook -- Negative from Stable

.Issuer: Qwest Capital Funding Corp. (QCF)

..Senior Unsecured -- Baa3 (unch.)

..Outlook -- Negative from Stable

.Issuer: Qwest Corp. (QC)

..Senior Unsecured -- Baa3 (unch.)

..Outlook -- Negative from Stable

.Issuer: Embarq Corp.

..Senior Unsecured - Baa3 (unch.)

..Outlook -- Negative from Stable

Issuer: Embarq Florida, Inc.

..First Mortgage Bonds - Baa1 (unch.)

..Outlook -- Negative from Stable

Issuer: Centel Capital Corp.

..Bkd Senior Unsecured - Baa2 (unch.)

..Outlook -- Negative from Stable

Issuer: Carolina Telephone & Telegraph Company

..Senior Unsecured - Baa1 (unch.)

..Outlook -- Negative from Stable

Issuer: United Telephone Co. of Pennsylvania

..First Mortgage Bonds - Baa1 (unch.)

..Outlook -- Negative from Stable

.Issuer - Northwestern Bell Telephone Co.

..Senior Unsecured - Baa3 (confirmed)

..Outlook -- Negative

.Issuer - Mountain States Telephone and Telegraph

..Senior Unsecured - Baa3 (confirmed)

..Outlook -- Negative

.Issuer: Savvis, Inc.

..Probability of Default Rating, Placed on Review for Possible Upgrade, currently B1

..Corporate Family Rating, Placed on Review for Possible Upgrade, currently B1

..Senior Secured Bank Credit Facility, Placed on Review for Possible Upgrade, currently B1

..Outlook - Rating Under Review from Stable

Please see ratings tab on the issuer/entity page on Moodys.com for the last credit rating action and the rating history.

The principal methodology used in rating CenturyLink Inc was the Global Telecommunications Industry Methodology, published December 2010.

CenturyTel, headquartered in Monroe, Louisiana, is a regional communications company engaged primarily in providing telephone and broadband services in various, predominately rural, regions of the United States. The company served approximately 7.0 million total access lines in 33 states as of December 31, 2010.

Savvis, located St. Louis, MO, is a provider of managed services, colocation, and network services in its 32 data centers across the world. The company generated about $933 million in revenues for the trailing twelve months ending December 31, 2010.

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

New York
John Diaz
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms CenturyLink Baa3 after plan to acquire Savvis; outlook negative
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