Qwest Communications International pleased bond investors by paying four points to premium on bonds that it offered for tender last week. Bond holders who tender their notes at or before Nov. 15 will also receive an early participation agreement of $50 per $1000 principal amount of notes. "It is good if you are long [on the company]," said a trader. To fund the tender offer, Qwest Communication is seeking to raise $1.1 billion through a new issuance of senior convertible notes due 2025. It also plans to fund the offer through $2 billion of cash. The $3 billion of bonds included in the tender offer are 13% '07, 13.5% '10 and 14% '14 senior subordinated secured notes issued by its subsidiary Qwest Services Corp.
The company said in a press release that it plans to reduce interest expense through the tender offer. The news caused Qwest's longer term bonds to trade up. The new convertible issue will pay a 3.5% coupon. Qwest Communications International's 7.25% '11 bond increased three points to 100 1/2, while its 7.5% '14 bonds jumped to 100 1/4 from 95 3/4.
Moody's Investors Service estimates that Qwest's tender offer for the high coupon notes will yield $300 million of cash interest savings annually. It upgraded Qwest Communication International's corporate family rating to B1 from B2 on the expectation of improvements in Qwest's balance sheet and free cash flows. It said this will offset increased competitive conditions at Qwest Corp. Moody's rated the new convertible notes issue B3. Standard & Poor's rated it B. Catherine Cosentino, an analyst at S&P, said the agency rated the notes two notches below a corporate credit rating because recovery on the notes in the event of default is junior to debt at its subsidiary Qwest Corporation. "The rating reflects the concentration of debt ahead of the issue," she said.