Banks renegotiate Qwest's line of credit
The carrier will be allowed to carry more debt on its balance sheet under the new deal and will have to use proceeds from sales of assets and securities to pay down the loan.
Qwest, which offers local phone service in 14 U.S. states, alarmed investors in February when it used up its $4 billion short-term line of credit to pay off its $3.2 billion commercial paper debt. The move pounded Qwest's stock and prompted Standard and Poor's and Moody's Investors Service to downgrade the carrier's credit rating.
Qwest has also said recently that the Securities and Exchange Commission asked the company for more information about its accounting practices, news that added to investors' concerns.
Wall Street has scrutinized telecom companies more closely as some start-up carriers like McLeodUSA and Global Crossing have declared bankruptcy, and other companies like Williams Communications teeter on the edge of financial viability.
Under the terms of the new deal, Denver-based Qwest will use $608 million from a $1.5 billion bond sale that it completed last week to pay back its credit, after which it will still owe $3.4 billion. Qwest will also be permitted to carry more debt on its balance sheet. The company said it ran the risk of defaulting on its debt under the old terms.
The new line of credit also requires Qwest to use proceeds from sales of assets and securities to pay down its loan until about $2 billion remains.
Qwest has taken steps recently to improve its finances and reduce its debt by between $1.5 billion and $2 billion. In addition to the recent debt offering, the company has been considering the sale of non-core assets like its access lines, wireless holdings and directory business to strengthen its finances.
The company also aims to cut costs by $1.1 billion this year through previously announced staff reductions, improved earnings and more efficient operations.