Fitch Rates Level 3's Convertible Senior Notes 'CCC/RR5'

Business Wire, June 23, 2009

CHICAGO -- Fitch Ratings has assigned a 'CCC/RR5' rating to Level 3 Communications, Inc.'s (LVLT) $200 million issuance of 7% convertible senior notes due March 2015. The notes will rank pari passu with LVLT's existing senior unsecured indebtedness. LVLT along with its wholly owned subsidiary Level 3 Financing, Inc. have a 'B-' Issuer Default Rating (IDR) and a Positive Rating Outlook. As of March 31, 2009, LVLT had approximately $6.4 billion of debt outstanding.

The proceeds from the note offering along with approximately $78.2 million of cash (plus accrued interest) will be exchanged for a portion of LVLT's outstanding 6% convertible subordinated notes due 2010 and its 2.875% convertible senior notes due 2010 pursuant to an exchange agreement the company has entered into with certain institutional investors.

In addition to the exchange, LVLT announced that during the second quarter the company used approximately $223 million of cash to repurchase in open market transactions approximately $247 million of debt (principal value) scheduled to mature between 2009 and 2012, including approximately $117 million scheduled to mature during 2009.

From Fitch's perspective the debt exchange and the open market debt repurchases have a positive effect on LVLT's credit profile and alleviates concerns related to the company's liquidity position seeing that a significant portion of the exchange and repurchases were targeted at outstanding debt scheduled to mature between 2009 and 2010. After the close of the exchange, expected to occur before the end of the second quarter, and considering the open market debt repurchases, LVLT has a total of $241 million of debt maturing during the balance of 2009 and 2010.

As of March 31, 2009, LVLT had approximately $672 million of cash on hand, and approximately $634 million pro forma for the transactions noted above and the issuance of the $280 million senor secured term loan B completed during April and May 2009. Fitch believes that the existing cash balances along with Fitch's expectation that LVLT generates positive free cash flow during 2009, adequately positions the company to satisfy the remaining scheduled maturities during 2009 and 2010.

The Positive Outlook reflects Fitch's expectations that LVLT's credit profile will continue to strengthen over the ratings horizon, that the company is positioned to grow revenues and expand operating margins in the context of the economic recession, and that overall industry demand and pricing metrics will remain relatively stable. LVLT's credit profile continues to strengthen. Largely based on the incremental EBITDA gained through the company's past acquisitions and subsequent margin improvements, LVLT has reduced its leverage to 6.36 times (x) as of the end of the first quarter. After considering the transactions announced today and the issuance of the senior secured term loan earlier in the second quarter, the company's leverage metric pro forma for the first quarter will improve modestly to 6.31x.

The timing of an upgrade of LVLT's IDR will be linked to the company's ability to consistently generate meaningful levels of free cash flow while maintaining positive organic revenue growth and improving margins, reduce leverage below 6.5x, and maintain a consistent liquidity profile in relation to upcoming scheduled maturities.

The absence of any material deterioration of LVLT's operating environment due to competitive or economic pressures will also be a key consideration for an upgrade.

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