Qwest amends credit facility, lands new loan

Qwest Communications has knocked down more financial barriers today, announcing it has reached an agreement with its lenders to amend the company’s $3.4 billion syndicated credit facility and secured a new $750 million term loan.

According to Qwest Chief Financial Officer Oren Shaffer, these actions resolve the company’s liquidity issues.

“Coupled with the pending sale of QwestDex, these actions announced today and the cash flow from our operations should provide us with enough funding for the next several years and put any liquidity concerns behind us,” he said in a press release.

Under the terms of the agreement, the facility’s maturity will be extended to May 2005 from its earlier maturity data of May 2003.

More pressing, though, was the facility’s covenant requiring a 4.0 times debt-to-EBITDA ratio by the end of the year. The company’s own financial guidance indicated it would violate this covenant. Under the renegotiated facility, though, the debt-to-EBITDA ratio has been raised to 6-to-1 throughout the loan’s term, an easily achievable goal.

In return for these concessions, Qwest has pledged stock of Qwest Corp., a subsidiary of Qwest Communications, as a security for the existing facility and granted secondary liens on the stock and certain assets of Qwest’s directory unit, which is being sold in two phases to a partnership of leveraged buyout firms.

The guarantees based on the directory unit are evidently in place should the sale of QwestDex not go through because, while they disappear when the sale closes, at the same time they trigger automatic payments that will bring the amount outstanding on the facility to $1.25 billion.

In addition, Qwest has also obtained a new $750 million term loan, due in 2004. The loan is secured by a lien on the stock and certain assets of QwestDex and a secondary lien on Qwest Corp. stock. This facility must be paid down by the completion of the directory sale, which is expected in 2003.

According to Tom Friedberg of Breen Murray & Co, today’s actions were expected. The major hurdle for Qwest was the sale of the Dex directory unit, after which everything else would fall into place.

“The issue was getting Dex sold,” said Friedberg. “Once Dex got sold, the company’s liquidity issues would clear themselves up, and that’s what happened.”