Qwest Communications: Bond-Swap Offer (a)

11 Pages Posted: 21 Oct 2008

See all articles by Mathias Hild

Mathias Hild

University of Virginia - Darden School of Business

Jordan Mitchell

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Abstract

By the end of 2002, Qwest Communications Inc., a major U.S. communications company, was reaching a precarious level of illiquidity in the face of huge debts. To reduce that debt, Qwest offered its institutional investors a chance to exchange some unsecured bonds for new senior-subordinated secured notes. But bondholders had no reliable data on Qwest's financials, and there is a two-day deadline for accepting Qwest's offer. See also the B case (UVA-QA-0648).

Excerpt

UVA-QA-0647

Qwest Communications Bond-Swap Offer (A)

By the end 2002, Qwest Communications, Inc. (Qwest)—a major U.S. communications company—was reaching a precarious level of illiquidity in the face of debts totaling $ 24.5 billion. Qwest sales had fallen by 22% from $ 19.7 billion in 2001 to a predicted year-end figure of $ 15.4 billion. Although the company's operating income was predicted to be positive by the end of 2002, the investment community was expecting major write-downs, placing itsnet loss at more than $ 15 billion. During the previous year, the company enjoyed operating income of $ 2.0 billion, while posting a net overall loss of $ 4.0 billion (see selected financial data in Exhibit 1). Qwest's market capitalization had shrunk considerably as its stock price had declined from $ 40.875 in 2000 to $ 14.24 in 2001 to $ 4.84 in 2002, yielding an aggregate market value of approximately $ 8.3 billion in December 2002. (For information on Qwest's stock, see Exhibit 2.)

In hope of reducing its debt, on November 20, 2002, Qwest offered its institutional investors the chance to exchange $ 12.9 billion in unsecured bonds in Qwest's subsidiary, Qwest Capital Funding (QCF), for new senior subordinated secured notes. Individual bondholders holding the remaining $ 100 million of QCF bonds were excluded from the offer, which was set to expire on December 20, 2002. At the time of the offer, bondholders had no reliable data on Qwest's financials, as the company was restating its balance sheet information in the midst of a Securities and Exchange Commission (SEC) investigation into its accounting practices. On December 18, 2002, the swap offer cleared a final hurdle when a U.S. District Court in New York denied a motion by individual bondholders to stop the swap.

History

Qwest Communications first came into prominence when it was purchased by Philip Anschutz, a well-known businessman who had realized his first successes in the oil industry. Anschutz purchased Southern Pacific Rail in 1988 and formed Southern Pacific Telecommunications (SPT), laying down fiber-optic cable along railway lines. By the early 1990s, SPT was offering long-distance and switching phone services. Anschutz saw the opportunity to include Qwest Communications in his telecommunications portfolio with the intention of building a fiber-optic network spanning the entire country.

. . .

Keywords: bankruptcy swaps Jordan Mitchell

Suggested Citation

Hild, Mathias and Mitchell, Jordan, Qwest Communications: Bond-Swap Offer (a). Darden Case No. UVA-QA-0647, Available at SSRN: https://ssrn.com/abstract=912051 or http://dx.doi.org/10.2139/ssrn.912051

Mathias Hild (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Jordan Mitchell

affiliation not provided to SSRN

No Address Available

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
99
Abstract Views
1,192
Rank
374,934
PlumX Metrics