Ratings firm Standard & Poor ‘s took action against Qwest Communications International Inc. yesterday, downgrading its corporate credit rating to “junk” status. The communications company contends the action will have no affect.
S&P cut Qwest’s corporate credit rating BBB- to BB+ — or junk status. The downgrade was fueled by “continued weakness in the overall economy and ongoing competitive threats are expected to pressure both the near-term and longer-term financial and operating performance of Qwest,” S&P analyst Catherine Cosentino said in a research note.
Qwest quickly fired back saying the downgrade was not based on any new information and says it expects to be cash flow positive by the end of the second quarter. The company contends it is funded to make quarterly payments on its $26.2 billion in debt until May 2003.
During a conference call this morning Qwest’s Chief Executive Joseph Nacchio said the company has received multiple bids for its yellow-pages business and may sell other non-core assets to raise as much as $10 billion. The yellow-pages unit alone is expected to bring in at least $8 billion. Part of S&P’s decision to downgrade the rating, however, stemmed from its belief that the yellow page business may not sell.
Qwest is not the first communications provider to be downgraded to junk by S&P this month; WorldCom was downgraded on May 10.
Qwest shares dipped 29 cents, or nearly 6 percent, to $4.74 as of 10:32 a.m. EDT. The shares are trading well off their 52-week high of $38.75. The company’s first-quarter net loss ballooned from $46 million, or 3 cents a share in Q1 2001 to $698 million, or 42 cents a share. The loss reflects a write-down of $462 million for the company’s equity investment in KPNQwest, and $74 million in restructuring charges.
Separately, KPNQwest announced today that its five-member supervisory board has resigned. The European fiber-optic network owner also warned that it may seek bankruptcy protection if an agreement with its senior bank group cannot be met.
