Qwest Corp., a subsidiary of debt-laden Qwest Communications International, is seeking a $1 billion term loan from a seemingly responsive bank debt market. Despite being a senior unsecured deal, investors are still keen on the loan's closeness to the former US West assets, which now comprise Qwest Corp. Qwest acquired baby bell US West in 2000. "[Qwest Corp. is] probably the safest part of the company," said Michael Schroeder, president of investment management firm Wasmer, Schroeder & Co. "That's where all the cash flow is." An investor concurred, noting that would help balance out the fact the deal is unsecured and pari passu with the company's other senior unsecured debt.
Market players said much of the Ba3/B- loan had been subscribed by late last week, ahead of the conference call tomorrow, but that could not be confirmed. Leads Merrill Lynch, Credit Suisse First Boston and J.P. Morgan are shopping the deal priced in the LIBOR plus 5% range. The credit also has an original issue discount between 981/2-99, a LIBOR floor between 11/2-2% and is non-callable in the first two years of the four-year loan. "It's hard to find yield without taking inordinate amounts of risk in this market," said Schroeder. He added that with investor demand exceeding supply, the credit should be further boosted with positive reception.
"It's not a no-brainer by any stretch," the investor noted. "There are still obvious concerns--they have not been able to provide audited financials and therefore the financial information is a little spotty--so you do have some risk on that side." He added that market players are still waiting on seeing how the second phase of the QwestDex sale to The Carlyle Group and Welsh, Carson, Anderson & Stowe will pan out. The first phase was completed last November in which Qwest received $2.75 billion in cash. The second phase of the sale is for $4.3 billion and is expected to be completed in the second half of this year.
Proceeds from the four-year deal will repay Qwest Corp.'s $1 billion 75/8% three-year notes expiring next Monday, June 9. The new loan will maintain Qwest Corp.'s debt at $7 billion. Calls to Merrill, CSFB and J.P. Morgan bankers were not returned. Questions for Qwest officials were referred to a spokesman who did not return calls by press time.