Level 3 ( LVLT) sank late Thursday after the telco said it would issue 160 million shares in a debt-for-equity swap aimed at cutting interest payments.

The Broomfield, Colo., company said Southeastern Asset Management and Legg Mason Opportunity Trust will exchange $490 million in 10% convertible senior notes due 2011 for 160.1 million common shares. The company has 1.18 billion shares outstanding.

Thursday's deal gives Southeastern and Legg Mason the equivalent of 326.78 shares per $1,000 note. The notes are currently convertible into shares of Level 3's common stock at a rate of 277.77 shares per $1,000 note.

As a result of the exchange, the company expects to reduce its 2007 cash interest expense by $47 million. The notes are callable by the company on May 1, 2009.

"This transaction is positive for our company as it helps us delever and reduce interest expense," said Sunit S. Patel, CFO of Level 3. "Throughout 2007, we expect to continue taking steps operationally and financially to improve our financial position."

Shares fell 14 cents to $6.34.