Qwest downgraded by Moody’s

Moody’s Investors Service yesterday became the second ratings agency to cut the debt of Qwest Communications International to junk status. The move follows a similar downgrade from S&P last week.

Moody’s cut Qwest two notches from Baa3 to Ba2, the second highest junk rating. Qwest Corp., the ILEC section of the business, was cut as well but remains investment grade at Baa3. The outlook for all ratings remains negative.

According to Moody’s, the downgrade reflects concerns about: the company’s liquidity; a cash drain in Qwest’s long-distance operations; high leverage relative to the company’s free cash flow generating ability, even with planned asset sales; the timing of revenue recognition of these sales; concerns surrounding the SEC investigation into the company; and “general corporate governance.”

Further downgrades are possible, Moody’s said, if the company is unable: to raise $8 billion to $10 billion from asset sales and realize their proceeds in a timely manner; complete a planned accounts receivable facility; stabilize operating performance; and survive the SEC investigation without serious ramifications.

In a press release responding to the downgrade, Qwest said that it was disappointed by the action, noting that it does not appear to be based on any new information. The company does not expect the downgrade to have any serious impact on its operations.

--Toby Weber, Staff Writer