DENVER — Qwest Communications International Inc. said Thursday that it would draw down its $4 billion in bank credit lines, acknowledging it had been shut out of the corporate bond market amid investor worries over telecom industry accounting practices.
The announcement came after major credit-rating companies lowered their ratings of Qwest, helping to further pummel its shares, which already are at their lowest since 1997. The stock fell $1.10, or 13%, to close at $7.49 on the New York Stock Exchange.
On Wednesday, Qwest--the dominant local phone company in 14 Western states--was unable to roll over $700 million to $800 million in short-term debt and was forced to draw down $1 billion of its $4-billion credit line.
On Thursday, the company tapped the full credit line and said it would use the bank loan to pay down all of its $3.2 billion of commercial paper, or short-term notes.
Qwest said that with the loan, its debt load stands at $24.9 billion. The company said it still plans to reduce its debt by $1.5 billion to $2billion and is considering asset sales. The company, which owns a major fiber-optic network and in 2000 bought Baby Bell U.S. West, said it also is exploring its long-term financing options.
"These steps address the short-term ... liquidity needs while allowing us to focus on executing on our strategy to grow our business, strengthen our balance sheet and generate free cash flow," Chief Executive Joseph Nacchio said.
Analysts said Nacchio must demonstrate that the local phone operations can generate enough cash flow to service the firm's debt and fund growth of new telecom services.
Qwest's sudden troubles stem from worries about its accounting practices, which have come under increased scrutiny since the collapse of fiber-optic network operator Global Crossing Ltd. and Enron Corp.
Denver-based Qwest said its accounting has been above-board, but investors are fleeing any stock where there is any hint that accounting may be challenged.
Standard & Poor's on Thursday lowered its long-term corporate credit rating on Qwest and its subsidiaries to BBB from BBB+ and gave it a negative outlook.
"The downgrade is based on Qwest's more limited financial flexibility and near-term liquidity concerns, a challenging operating environment and uncertainty regarding the implications" for certain accounting methods used by the industry, S&P analyst Greg Zappin said.