Moody's ups Qwest, rates convertible B3

Moody's Investors Service said it assigned a B3 rating to Qwest Communication International Inc.'s senior convertible notes due 2025, affirmed Qwest's SGL-1 speculative grade liquidity rating and affirmed Qwest Corp.'s senior unsecured ratings at Ba3.

Moody's said it also upgraded the corporate family rating to B1 from B2, its $1.825 billion senior notes to B2 from B3, $750 million floating-rate notes due 2009 to B2 from B3, its $70 senior unsecured notes due 2008 to B3 from Caa1 and $33 senior unsecured notes to B3 from Caa2.

The outlook is stable.

Moody's said it expects Qwest to use the proceeds from the new convertibles with about $2 billion in cash to redeem high-cost debt at Qwest Service.

The rating upgrade concludes the review initiated on Oct. 19 and is based on expectations for continued improvements in Qwest's balance sheet and free cash flows as well as the elimination of some of the litigation overhang in light of the recently announced shareholder litigation settlement, the agency said.

Moody's also said it believes Qwest's recently announced tender offer for high-coupon Qwest Service senior subordinated notes will yield significant cash interest savings - estimated at about $300 million annually - and demonstrates the company's commitment to debt reduction.

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