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Announcement:

Moody's places Global Crossing's ratings on review -- direction uncertain

Global Credit Research - 11 Apr 2011

Approximately $900 million of rated debt instruments affected

Toronto, April 11, 2011 -- Moody's Investors Service (Moody's) will review Global Crossing Limited's (Global Crossing) ratings in light of the company's announcement that it has agreed to be acquired by Level 3 Communications Inc. (Level 3) in a share exchange transaction that was announced earlier today. While the transaction makes good business sense for both Global Crossing and Level 3, since it is not clear whether Global Crossing's unconsolidated credit profile remains largely unchanged or improves as a result of the transaction, the company's ratings have been placed on review with direction uncertain. In the interim, the company's B3 corporate family and probability of default ratings (CFR and PDR respectively) remain unchanged, as does the B2 rating of its senior secured notes and the Caa2 rating of its senior unsecured notes.

It should be noted, however, that Global Crossing's notes contain change of control provisions. Depending on net synergy attribution and the amount of debt that remains post-closing at Global Crossing, given their structural seniority relative to debts at Level 3, individual instrument ratings may be subject to change even if the consolidated CFR and PDR of the combined entity remains unchanged. We do not expect the ratings for any of Global Crossing's debt to be downgraded, but are uncertain whether certain of its debt ratings will remain unchanged or be upgraded.

Pending normal regulatory and shareholder approvals, the transaction is expected to close by year-end. Moody's review is anticipated to conclude at approximately the same time and will focus on the magnitude and timing of synergies, the costs of achieving them, related execution risks, liquidity planning, and the combined entity's credit profile once steady state is achieved. Global Crossing's debt will have preferential access to its own cash flow and will be structurally senior to debt at Level 3, and credit enhancement resulting from the transaction will depend on net synergy attribution. Our review will focus on this matter as well as the consolidated benefits.

Global Crossing's financial profile is more conservative than Level 3's (4.5x Debt/EBITDA vs. 7.8x Debt/EBITDA (all quoted metrics incorporate Moody's standard adjustments)), but its margins are weaker (17% vs. 27%). Pre-synergies, the transaction is margin-positive on a consolidated basis (approximately 23%), but negative from a consolidated leverage perspective (to approximately 6.5x) when compared to Global Crossing's stand-alone position. Depending on synergies and the proportion of implementation costs that may be debt-financed, combined leverage could improve into the high 5x range. Irrespective, we think the key to the consolidated rating will be resulting free cash potential. Even with full synergy realization, Level 3's margins return only to pre-transaction levels. However, depending on the combined entity's capital expenditure intensity, Level 3's historically lackluster free cash generation will be bolstered and further de-levering may be possible.

The following summarizes today's rating actions and Global Crossing's ratings:

Outlook Actions:

..Issuer: Global Crossing Ltd.

....Outlook, Changed To Rating Under Review From Stable

On Review Direction Uncertain:

..Issuer: Global Crossing Ltd.

.... Probability of Default Rating, Placed on Review Direction Uncertain, currently B3

.... Corporate Family Rating, Placed on Review Direction Uncertain, currently B3

....Senior Secured Regular Bond/Debenture, Placed on Review Direction Uncertain, currently B2 (LGD3, 33%)

....Senior Unsecured Regular Bond/Debenture, Placed on Review Direction Uncertain, currently Caa2 (LGD5, 84%)

SUMMARY RATING RATIONALE

Global Crossing's B3 ratings are influenced primarily by the company's participation in a highly competitive telecommunications arena, its relatively poor EBITDA margins, limited free cash generation, and significant debt load. The business combination implies relatively weak interest coverage and debt repayment capacity. The rating also accounts for the company's unique network footprint and solid internet protocol (IP) product offering together with the expectation that demand for IP-based broadband capacity will continue to grow and cause the company's cash flow stream to expand.

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

The principal methodologies used in this rating were Moody's Global Telecommunications Industry rating methodology, published in December 2007 (document #106465), and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in Hamilton, Bermuda and with administrative offices in Florham Park, New Jersey, Global Crossing Limited (Global Crossing) offers Internet Protocol (IP) and legacy telecommunications services in most major business centers in the world.

The ratings discussed herein are in the name of Global Crossing Limited. Global Crossing's wholly-owned subsidiary, Global Crossing (UK) Finance plc is rated as a discrete but related entity since its financing arrangements substantially "ring fence" its cash flow and assets.

Toronto
Bill Wolfe
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

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

Moody's Canada Inc.
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Suite 1400
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Canada
(416) 214-1635

Moody's places Global Crossing's ratings on review -- direction uncertain
No Related Data.
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