Another executive from

Qwest's

(Q)

troubled past is heading for the exit, as the big telco turns its focus toward winning over its creditors.

Afshin Mohebbi, Qwest's operating chief and right-hand man to former CEO Joe Nacchio, said late Wednesday he would resign at year-end after three-and-a-half years with the company. The change comes as Qwest starts the first of many meetings with large bondholders to get its desperately needed $12.9 billion refinancing plan in gear.

As has been its habit recently, Wall Street took the news as a positive, sending the stock up 7% during a strong marketwide rally. A bond investor said the news was good because it suggests that new management has a handle on the company's business operations, though it still faces potential pitfalls that could arise in any of several ongoing probes of Qwest's books and business practices.

"I think his departure says

CEO Dick Notebaert and his crew now know the lay of the land," says Qwest bondholder Robert Rock with John Hancock Advisers. "They've probably got a solid game plan and a pretty good idea how to bring the cost of business down."

Idea Man

Even so, investors shouldn't forget that the Denver phone giant is

trying to stave off insolvency by getting creditors to swap about $13 billion in bonds for a new set of later-maturing debts. And while Qwest is offering to pay twice as much in interest rates on the new bonds, some investors say the company will have difficulty selling creditors on the exchange. That could put stockholders in a tight squeeze.

Afshin Mohebbi

Since Qwest isn't in a position to offer bondholders much cash with the swap, some investors and analysts say Qwest may have to dangle equity to sweeten the deal.

Qwest declined to comment. But the dilutive effects of any equity deal could likely end the stockholders' three-month winning streak.

Shares of Qwest, after all, have more than tripled since August when the company agreed to sell its Qwest Dex yellow pages business. The debt refinancing, like directory asset sale, aims to keep the company afloat, but each move carries a painful toll. And though Qwest shares have risen substantially with evidence that the company will avoid bankruptcy for now, the company's business hasn't picked up accordingly.

Indeed, with several civil and criminal investigations into Qwest accounting and business practices yet to be resolved, and its core residential phone business on a 9% decline, the company doesn't necessarily have the luxury of keeping all the investors happy. That could mean that the company will be forced to pull out all the stops in its effort to please creditors.

Exodus

In departing, Mohebbi joins Nacchio and chief lawyer Drake Tempest in the exodus of Qwest executives who have been replaced by a team led by Notebaert and CFO Oren Shaffer. Former CFO Robin Szeliga has remained with the company as the Securities and Exchange Commission and the company's new outside auditors re-examine the books.

Qwest bondholder Rock sees signs of encouragement in Mohebbi's departure. As COO, Mohebbi had a deep knowledge of all Qwest's various contracts including service agreements and lease arrangements for central offices and Web hosting facilities.

Mohebbi notably oversaw some of Qwest's more controversial deals, including

network capacity swaps and equipment reselling arrangements with not altogether unrelated entities like

Calpoint.

Mohebbi declined to be interviewed.

Other observers suggest that Mohebbi had outlived his usefulness to the new management team. Early on, after Nacchio departed, Mohebbi was offered up to testify before two congressional hearings into Qwest's role in the telecom turmoil this year.

"He was a great operator, he knew the ins and outs of the business," says one hedge fund manager who is short the stock. "Unfortunately he was weak and gave in to Nacchio's pressures to pump up revenues."

But at some point, Qwest is going to have to do more than lighten its load to stay afloat.

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