Level 3 Swings the Ax

Level 3 Communications (LVLT) posted a wider fourth-quarter loss, set plans to cut 1,000 jobs and said it would raise $500 million in its latest financing transaction.

The Broomfield, Colo., telco lost $237 million, or 20 cents a share, for the quarter ended Dec. 31, compared to the year-ago continuing operations loss of $226 million, or 32 cents a share. Revenue rose to $846 million from $418 million a year earlier.

Analysts were looking for a 14-cent loss on revenue of $831 million.

The company said it will sell $500 million of senior notes in two tranches -- one tranche that will mature in 2015 and will bear interest at a floating rate and a second tranche that will mature in 2017 and will bear interest at a fixed rate -- in a proposed private offering to qualified institutional buyers" as defined in Rule 144A. Level 3 intends to call for redemption its 12-7/8% senior discount notes due 2010 using cash on hand.

Level 3 said it is seeking to refinance its $730 million amended and restated senior secured credit agreement. The company is seeking, among other things, to increase principal to $1 billion, reduce the interest rate payable under the agreement, and extend the maturity from 2011 to 2014.

During the fourth quarter, Level 3 Financing repurchased $497 million of its outstanding 10.75% senior notes due 2011 and amended the indenture pursuant to which those senior notes were issued. Level 3 Financing also completed two separate private offerings of $600 million and $650 million aggregate principal amount of 9.25% senior notes due 2014.

In January 2007, in two separate transactions, Level 3 announced exchanges of $605 million in aggregate principal amount outstanding of its 10% convertible senior notes due 2011 for approximately 196.8 million shares of Level 3's common stock. The company expects to reduce interest expense in 2007 by $58 million as a result of these exchanges. The company expects to recognize a $177 million loss associated with these exchanges in the first quarter of 2007.

"As evidenced by the transactions we conducted in January of this year, we intend to continue pursuing refinancing efforts to lower our interest expense," said Sunit S. Patel, CFO of Level 3.

The company expects to reduce headcount in 2007 as part of its integration efforts by approximately 1,000, which will result in about a $120 million reduction in annualized operating expenses. In addition, during 2007, Level 3 expects to reduce network expenses by approximately $80 million on an annualized basis.

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