Qwest Communications posts $13.3 billion of debt, repays 1Q maturity

By Jennifer Lanning Drey

Portland, Ore., April 29 - Qwest Communications International, Inc. ended the first quarter with gross debt of $13.3 billion after retiring $230 million of maturing debt during the period, Joe Euteneuer, chief financial officer of Qwest, said Wednesday during the company's quarterly earnings conference call.

With cash and cash equivalents of $541 million, net debt at quarter end was $12.8 billion, representing a nearly $200 million decline from the end of the prior quarter.

The company's philosophy continues to look to retire parent company debt as it matures while refinancing maturing obligations at its regulated subsidiary, Qwest Corp., Euteneuer said.

Qwest executed against that strategy in early April by issuing $811 million of regulated debt, which effectively refinanced $320 million of regulated debt scheduled to mature in the fourth quarter, as well as provided a head start on refinancing regulated maturities due next year, Euteneuer said.

Qwest's revolving credit facility, which was recently increased to $910 million, was undrawn at the end of the quarter.

Euteneuer said generating free cash flow remains a key goal for the company, which produced $657 million in cash from operating activities during the first quarter. The figure was up nearly 70% year over year, helped by working capital improvements.

As a result of the improved cash from operating activities, as well as lower capital expenditures during the quarter, Qwest generated adjusted free cash flow of $339 million for the period.

"This gives us a great start on our free cash flow objective for the year," Euteneuer said.

Adjusted EBITDA flat

With a focus on profitable revenue and cost management, Qwest posted first-quarter adjusted EBITDA of $1.15 billion, which was flat with the comparable prior-year quarter.

Euteneuer said the company was encouraged by the first-quarter adjusted free cash flow and adjusted EBITDA results, but its enthusiasm was tempered by the state of the economy and its current outlook.

As a result, Qwest maintained the full-year adjusted free cash flow and adjusted EBITDA guidance it provided in February. The guidance projects adjusted free cash flow of $1.4 billion to $1.5 billion and adjusted EBITDA of $4.2 billion to $4.4 billion.

"These remain our primary goals, and we believe we have sufficient levers to reach these goals for 2009," Euteneuer said.

One such lever is capital expenditures, which are expected to be $1.8 billion or less for the year but could be reduced as necessary to meet the free cash flow goal.

Qwest's capital expenditures will be focused on projects related to future growth, as well as infrastructure maintenance and regulatory mandates, Euteneuer said.

Qwest reported first-quarter revenue of $3.2 billion, down 7% from revenue of $3.4 billion in the first quarter of 2008.

Qwest is a Denver-based telecommunications company.

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