Business Context and Reporting Period
This Form 8-K Current Report, dated June 8, 2011, is filed by CenturyLink, Inc., Qwest Communications International Inc., and Qwest Corporation. The filing details a significant debt refinancing transaction executed by Qwest Corporation (QC), an indirect wholly-owned subsidiary of CenturyLink.
Key Financial Metrics
- New Debt Issuance: QC publicly sold $661,250,000 aggregate principal amount of 7.375% Notes due 2051.
- Over-Allotment: The issuance included $86,250,000 sold pursuant to an over-allotment option.
- Net Proceeds: QC expects to receive approximately $643 million in net proceeds after deducting underwriting discounts and estimated expenses.
- Debt Redemption: The net proceeds, combined with borrowings from CenturyLink, will be used to redeem $825 million aggregate principal amount of QC's 7.875% Notes due 2011.
- Interest Payments: Interest on the new Notes is payable quarterly in arrears, beginning September 1, 2011.
Material Changes
The primary material change is the replacement of short-term debt with long-term debt. QC is retiring $825 million of notes maturing in 2011 by issuing $661.25 million of notes maturing in 2051. This transaction extends the maturity profile of the company's debt obligations by 40 years. The coupon rate on the new debt (7.375%) is lower than the rate on the debt being redeemed (7.875%), resulting in a reduction in interest expense on the principal amount refinanced.
Outlook, Risks, and Unusual Items
Management Commentary: The transaction was executed to manage liquidity and debt maturity schedules. The new Notes are senior unsecured obligations, ranking equally with existing unsecured debt.
Redemption Terms: QC may redeem the new Notes in whole or in part on or after June 1, 2016, at 100% of the principal amount plus accrued interest.
Risks and Contingencies: The filing notes that the transaction relies on borrowings from CenturyLink to cover the difference between the net proceeds and the redemption amount. The full terms and risks are qualified by reference to the Underwriting Agreement and Supplemental Indenture filed as exhibits.
Investor Verification Checklist
- Verify the exact amount of borrowings from CenturyLink required to fund the $825 million redemption alongside the $643 million net proceeds.
- Review the Supplemental Indenture (Exhibit 4.1) for specific covenants and default provisions associated with the new 2051 Notes.
- Confirm the impact of the interest rate swap (from 7.875% to 7.375%) on the company's future cash flow projections.
- Check the listing status of the new Notes on the New York Stock Exchange for trading liquidity.