S&P lowers Qwest two notches

Standard & Poor’s Ratings Services has lowered the credit rating for Qwest Communications two notches, to B- from B+. Qwest now sits six notches below investment-grade status.

In addition, S&P moved Qwest to CreditWatch negative, meaning the potential direction for a future ratings change is downward.

In lowering Qwest’s rating, S&P cited the company’s second quarter earnings before interest, taxes, depreciation and amortization (EBITDA), which declined 33% sequentially, and its guidance for 2002 operating cash flow, which was lowered to between $5.4 billion and $5.6 billion from $6.4 billion and $6.6 billion.

Another issue facing Qwest is the 4.25 debt to EBITDA covenant that is part of its bank facility. Given the company’s current guidance, it will violate that covenant in the fourth quarter.

Though Qwest is in the process of renegotiating that facility, the failure to do so could result in another ratings change from S&P.

“Qwest’s inability to obtain amendments or waivers to its bank facility before the end of September 2002 could lead to a further downgrade,” said S&P’s note explaining the action.

A Qwest spokesman, however, said S&P’s action was based on old news.

“We know of nothing new that would cause S&P to make this adjustment,” said a Qwest spokesman. “The information disclosed or discussed was announced three weeks ago in ours second-quarter earnings announcement.”

In other Qwest news, the investment team that has agreed to buy QwestDex, the carrier’s directory unit, for $7.05 billion is reportedly planning to issue up to $1 billion in bonds to help finance the purchase.

The bonds, which would in some way be tied to QwestDex, will likely be issued in October. The Qwest spokesman had no comment on the sale.