Level 3 Communications $200 million convertibles talked at 5.0%-5.5%, up 17.5%-22.5%

By Ronda Fears

Nashville, Nov. 12 - Level 3 Communications Inc. launched $200 million of seven-year convertible notes talked to yield 5.0% to 5.5% with a 17.5% to 22.5% initial conversion premium Friday.

Merrill Lynch & Co. is sole bookrunner of the Rule 144A deal, which is slated to price after the market close Wednesday or Thursday.

The senior notes will be non-callable for four years.

There is full dividend protection for holders.

A $40 million greenshoe is available.

The Broomfield, Colo.-based provider of internet access services intends to use a portion of proceeds, together with borrowings under a $450 million senior secured term loan by subsidiary Level 3 Financing Inc., to fund the purchase of debt due 2008, subject to pending tender offers.

In addition, Level 3 plans to use 14% to 29% of proceeds to enter into bond hedge and warrant transactions with respect to its common stock, designed to limit dilution from the conversion of the notes by effectively increasing the conversion premium to between 70% and 100%.

Remaining net proceeds may be used to repurchase, repay or refinance existing debt from time to time and for general corporate purposes, including working capital, capital expenditures and acquisitions.

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