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Announcement:

Moody's to review Level 3's ratings -- possible upgrade

11 Apr 2011

Approximately $6 billion of rated debt instruments affected

Toronto, April 11, 2011 -- Moody's Investors Service (Moody's) will review Level 3 Communications Inc.'s (Level 3) ratings for possible upgrade in light of the company's announcement that will acquire Global Crossing Limited (Global Crossing) in a share exchange transaction that was announced earlier today. Level 3 has Caa1 corporate family and probability of default ratings (CFR and PDR respectively). Depending on relative seniority, individual instruments are rated B1, Caa1 and Caa3.

Since we expect the transaction to result in reduced leverage and improved free cash generation, Level 3's ratings have been placed on review for possible upgrade. It should be noted however, that depending on the amount of debt that remains at the Global Crossing entities and that debt's anticipated structural seniority relative to debt at Level 3, instrument ratings for Level 3's debt may remain unchanged even if the CFR and PDR are upgraded. In the interim, all ratings remain unchanged (see listing below).

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 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 dilutive (approximately 23%) but de-leveraging (to approximately 6.5x). Depending on synergies and the proportion of implementation costs that may be debt-financed, combined leverage could improve into the high 5x range. However, we think the key to the 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 Level 3's ratings:

Outlook Actions:

..Issuer: Level 3 Communications, Inc.

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

..Issuer: Level 3 Financing, Inc.

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

On Review for Possible Upgrade:

..Issuer: Level 3 Communications, Inc.

.... Probability of Default Rating, Placed on Review for Possible Upgrade, currently Caa1

.... Corporate Family Rating, Placed on Review for Possible Upgrade, currently Caa1

....Senior Unsecured Conv./Exch. Bond/Debenture, Placed on Review for Possible Upgrade, currently Caa3 (LGD5, 89%)

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Upgrade, currently Caa1 (LGD4, 55%)

..Issuer: Level 3 Financing, Inc.

....Senior Secured Bank Credit Facility, Placed on Review for Possible Upgrade, currently B1 (LGD1, 8%)

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Upgrade, currently Caa1 (LGD4, 55%)

SUMMARY RATING RATIONALE

Level 3's corporate family and probability of default ratings (CFR and PDR respectively) are Caa1; the company's ratings are under review for possible upgrade. Absent the benefits of the pending acquisition of Global Crossing, the primary ratings influence continues to stem from concerns that the company's capital structure is not sustainable over the long term. While Level 3 has a fundamentally sound business proposition, being well positioned as a network infrastructure provider to benefit from expanding bandwidth demand and the conversion of telephony to IP-based capacity, we are concerned that the company will not consistently be able to generate enough cash flow to cover both capital expenditures and interest expense and have any surplus with which to reduce its debt load. The viability of Level 3's capital structure depends on top-line growth and margin expansion. In the context of relatively low general economic growth and with significant competition, it is not clear we can expect more than moderate cash flow growth for the next year or two. This is quite important given pending refinance activity related to 2013/2014 maturities. Notwithstanding this, Level 3 has consistently demonstrated access to the capital markets and maintains relatively large cash balances that generally provide adequate forward cover for +/- 18 months of operations.

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 Speculative Grade Liquidity Ratings published in September 2002, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in Broomfield, Colorado, Level 3 Communications, Inc. (Level 3) is a publicly traded international communications company with one of the world's largest communications and internet backbones.

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.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's to review Level 3's ratings -- possible upgrade
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