Fitch Places Qwest's Ratings on Rating Watch Positive

CHICAGO--(BUSINESS WIRE)--Nov. 2, 2005--Fitch has placed Qwest Communications International's (Qwest) 'B' Issuer Default Rating (IDR), along with each of the issue ratings assigned to Qwest and its wholly owned subsidiaries outlined below, on Rating Watch Positive. Approximately $17.2 billion of debt as of Sept. 30, 2005 is affected. Fitch's action follows Qwest's announcement that its wholly owned subsidiary Qwest Services Corporation (QSC) has commenced a $3 billion cash tender offer and consent solicitation for its 13.5% senior subordinated secured notes due 2010, 14.0% senior subordinated secured notes due 2014, and the 13.0% senior subordinated secured notes due 2007. Qwest intends to fund the tender offer with approximately $2 billion of existing cash and proceeds from a proposed $1 billion offering of senior convertible notes through Qwest.

Fitch believes that the tender for the high-cost debt at QSC will generate annual cash interest savings of approximately $300 million, reduce leverage to 3.9 times (x) (on a pro forma basis as of Sept. 30, 2005), and simplify Qwest's debt structure. Going forward Fitch expects that the debt tender combined with the convertible notes will generate approximately $250 million of incremental free cash flow, which together with anticipated free cash flow growth stemming from operational gains is expected to yield total free cash flow generation of between $1.0 billion and $1.3 billion during 2006.

Qwest's credit profile has benefited from stabilizing access line erosion, margin improvements derived from ongoing cost reductions and the reduction of unconditional purchase obligations and positive free cash flow generation that has resulted in a gradual improvement in overall credit protection metrics. In addition the company's credit profile is further stabilized by the elimination of the overhang on the credit related to shareholder litigation.

Overall, Fitch's ratings for Qwest and its subsidiaries incorporate the scope, scale, and relatively stable cash flow generated by Qwest Corporation's (QC) local exchange business, the company's stable liquidity position, and the expectation of positive free cash flow generation. Fitch's ratings also recognize that QC's local exchange business faces the ongoing challenges from competition and product substitution that have negatively affected the company's access line portfolio and operating margins. The high business risk and cash requirement of Qwest's out-of-region long haul business is also reflected in Fitch's ratings. Lastly, Fitch believes that the company's operating profile, relative to its RBOC (regional bell operating companies) peer group, is limited with the lack of significant growth opportunities.

Fitch intends to resolve the Rating Watch Positive pending the results of the tender offer and expects that any rating upgrade of the IDR will be limited to one notch. Fitch notes that this transaction will have a favorable impact on recovery ratings that could result in individual issues being upgraded by more than one notch. Additionally Fitch anticipates assigning a 'B' rating to the proposed $1 billion issuance of senior unsecured convertible notes by Qwest.

Fitch has placed the following ratings on Rating Watch Positive:

Qwest Communications International

-- Senior Unsecured 'B+'/'R3'

-- Senior Unsecured 'B-'/'R5'

Qwest Capital Funding

-- Senior Unsecured 'B-'/'R5'

Qwest Services Corporation

-- Senior secured revolver 'BB'/'R1'

-- Subordinated secured notes 'B+'/'R3'

Qwest Communications Corporation

-- Senior unsecured 'B-'/'R5'

Qwest Corp.

-- Senior unsecured 'BB'/'R1'

-- Term loan 'BB'/'R1'

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.