Qwest planning to weather credit market woes by paying down debt

By Jennifer Lanning Drey

Portland, Ore., Oct. 29 - Qwest Communications International, Inc. believes it has the ability to withstand an extended period of tight credit availability by paying off maturing debt, Joe Euteneuer, Qwest's chief financial officer, said Wednesday during the company's third-quarter earnings conference call.

"While we have every expectation that credit market conditions will improve, we are confident we have the resources to manage through today's challenging conditions," Euteneuer said.

Qwest ended the third quarter with liquidity of more than $1.4 billion, consisting of $586 million in cash and $850 million of revolver capacity.

During the quarter, the company retired $171 million of maturing debt.

"Current credit markets are pricing our debt at irrational levels. With refinancing not a viable option, the near-term orientation will be to pay down debt until we see a more healthy credit market," Euteneuer said.

Qwest ended the third quarter with total debt of $14.1 billion. Net debt was $13.3 billion.

The company's debt maturity schedule includes $390 million of debt maturing in the fourth quarter and more than $800 million of maturities coming due between the first and third quarters of 2009.

During the call, Euteneuer noted that if Qwest is able to access the credit markets at reasonable rates it would be likely to return to its practice of refinancing regulated debt.

Qwest also has $1.3 billion of convertible notes outstanding that can be put back to the company every five years on Nov. 15, staring in 2010.

The company does not expect to have any pension funding requirements in 2009 but could have funding requirements of between $130 million and $300 million in 2010, Euteneuer said.

Cash flow $330 million

Qwest reported third-quarter adjusted free cash flow of $330 million, bringing the year-to-date total to nearly $850 million. The company is on track to finish 2008 in the $1.5 billion range for adjusted free cash flow, Ed Mueller, the company's chief executive officer, said during the call.

Qwest posted net income of $151 million for the third quarter, compared to net income of $2.1 billion during the same period in 2007.

The year-ago period results included a one-time tax benefit of $2.1 billion and a $353 million charge for legal matters, while the current quarter included a $63 million severance charge and $33 million lease restructuring benefit.

Revenue declined 2% year over year.

Qwest is a Denver-based telecommunications company.

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