Moody's cuts Qwest long-term ratings to Baa3

Moody's on Tuesday lowered the long-term ratings of Qwest Communications International and fully guaranteed Qwest Capital Funding to Baa3 from Baa2. Moody's also lowered the long-term rating for the subsidiary Qwest Corp. to Baa2 from A3. The short-term ratings for both the parent and Qwest Capital were lowered to P-3 from P-2. All ratings remain on review for possible further downgrade.

The downgrades reflect concerns about Qwest's ability to resolve substantial near-term debt maturities as well as the need to negotiate a covenant waiver under its $4 billion bank facility and repay $850 million of maturing long term debt in July, Moody's said.

In addition, Moody's noted Qwest's substantial investment over the past two years in its long haul and local businesses have left it with a substantial debt load, particularly at the parent, while not yet generating free cash flow. The long haul business housed at Qwest Corp. faces considerable pressure going forward due to excess capacity in the market, Moody's added.

The previous two-notch rating gap between the parent and Qwest Corp. was narrowed to one notch because Qwest Corp., which generates the majority of Qwest's consolidated cash flow, may be used to raise more debt, which would weaken its own credit measures, Moody's explained.

Qwest's loss of access to the commercial paper market and complete drawdown of its $4 billion bank facility has left the company with little alternate liquidity at a time when free cash flow is still negative, Moody's noted. Qwest is currently in the process of negotiating with its banks for both an extension and relief under the total debt to EBITDA covenant of 3.75 times. However, Moody's believes the company will need to raise additional long-term financing within the next month or two in order to meet maturities coming due this summer.

The continuing review will also focus on Qwest's ability to significantly reduce capital expenditures, which are estimated to be down to $3.7 billion from $8.6 billion last year, while still growing revenues and the potential to reduce debt with cash asset sales or other alternatives over the next two to three quarters.

Moody's rates Storebrand exchangeable Baa1

Moody's Investors Service assigned a Baa1 rating to the bond exchangeable into shares of Orkla issued by Storebrand ASA. The outlook is negative.

Moody's said the Baa1 issuer rating is derived from the A2 insurance financial strength rating of Storebrand Livsforsikring, which is the main operation and cash generator of the Storebrand Group that also has banking, asset management and unit-linked activities.

Storebrand Livsforsikring is able to upstream dividends to the holding company and ultimate shareholders, the rating agency said. Storebrand Livsforsikring benefits from a very strong market position in the Norwegian life insurance market for many years, the quality of its multi-distribution capability and the successful expansion of the company's franchise to new products such as unit-linked contracts.

The negative outlook reflects the weakened balance sheet due to declining equity markets and the amount of subordinated debt on the balance sheet of Storebrand Life in addition to the debt of Storebrand ASA. The outlook also reflects the strategic uncertainty faced by the group following the withdrawal of Sampo's purchase offer last year, Moody's said.

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