Level 3 shares being offered by Merrill to unwind bond hedge and warrant transactions

By Rebecca Melvin

New York, Sept. 24 - Level 3 Communications Inc. said Merrill Lynch International plans to sell an undetermined number of shares in the market from time to time that Merrill acquired to hedge its exposure to bond hedge and warrant transactions, according to a filing with the Securities and Exchange Commission Wednesday.

The early unwind of the bond hedge and warrant transactions doesn't have anything to do with Merrill Lynch being acquired by Bank of America, Level 3 spokeswoman Debra Havins said.

Instead, the early unwind is because the hedge expires Dec. 15, and Level 3 is taking advantage, or being opportunistic, of current market conditions, Havins said.

In connection with the early unwind, Merrill Lynch has agreed to pay Level 3 an amount in cash based on the sale price of the shares on the days on which it sells the shares. The economic impact of such sales on Level 3 is supposed to be negligible, Havins said.

The hedge and warrant transactions originated from December 2004, when Level 3 priced $345 million of 5.25% convertible senior notes.

"None of these shares were or would be acquired from us, and these proposed offers and sales will not increase the number of shares of our common stock outstanding," Level 3 said in the filing.

Merrill Lynch currently owns 30,473,964 shares of Level 3, or 1.95% of the total number of shares outstanding as of Sept.19.

The number of shares that may be offered or sold are 23,000,000 shares, leaving Merrill Lynch with 7,473,964 shares after the offering.

Based in Broomfield, Colo., Level 3 is a provider of international communications, including internet protocol services, broadband transport and infrastructure services, collocation services and voice and VoIP services.

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