Qwest Communications' bank debt traded last week in the 69 context, after Standard & Poor's downgraded the company from BB+ to B+ over concerns that it would not be able to meet a bank covenant or handle $6.5 billion of debt coming due in May 2003. Market players quoted wide levels for the paper on July 11, with some citing the market in the low 60s and others calling for bids as high as 70. The name has fallen from the 75-80 range, where it had come to rest after the company admitted that it was the subject of a criminal investigation (LMW, 7/15).
S&P is looking to the sale of Qwest's directory business as a lifeboat to the company's financial constraints. With recent reports indicating that the business would be sold in pieces to avoid regulatory delay and Qwest dependent on the sale to meet its debt-to-EBITDA covenant, the uncertainty surrounding the outcome has put pressure on the ratings.
"This [downgrade] reflected our increased concerns over the company's liquidity in light of some of the events that have occurred," said Catherine Cosentino, analyst at S&P, in a conference call. She noted, however, that the bank debt is on watch with developing implications, which indicates the rating could be upped if the company is able to successfully surmount its obstacles. If not, the rating is likely to be downgraded further. A Qwest spokesman said the company is continuing to negotiate with bidders for its directory business and expects a decision in the near future, but he declined to elaborate further.