The Washington Post
Qwest Communications International Inc., the dominant local telephone company in 14 Western states, found itself in a cash crunch Thursday as its short-term creditors refused to continue lending money amid concerns about past accounting practices.
Qwest said it was forced to seek alternative financing by tapping credit lines totaling $4 billion from two major banks. The move showed how even local telephone giants, once thought to be islands of financial stability, are being reassessed by lenders after Enron Corp.’s collapse and a steep downturn in the telecommunications sector.
Thursday’s action came as Standard &Poor’s and Fitch Inc. reduced Qwest’s short- and long-term credit ratings because of the company’s dwindling financial flexibility. Investors drove down Qwest’s shares by $1.10 to $7.49, a decline of 12.8 percent, to their lowest price since August 1997.
"This is really scary," said Scott Cleland, an analyst with the Washington, B.C.-based Precursor Group. "The fourth-largest local telephone company, which provides lifeline service to over 10 million homes, is seeing its solvency questioned."
Several analysts said Qwest is in little danger of filing for bankruptcy. Its local phone business accounts for 80 percent of the company’s revenue, and the company has significant assets it can sell, such as a profitable phone directory business.
But Qwest has been the subject of several reports questioning its accounting practices, including the way it accounted for deals in which it traded access to its networks with other companies.
During a conference call with analysts Thursday night, Qwest chief executive Joseph Nacchio said Qwest had followed all generally practiced accounting rules in recording the transactions, which are commonplace in the industry. "We have no other unusual deals," he said. "What you see is what you get."
Nacchio blamed the lenders’ skittishness on heightened concerns in "the very nervous post-Enron market." He said he would take the unusual step of holding a conference call once a week to reassure investors and analysts about Qwest’s financial health.
"We are not going to allow rumor and innuendo to drive the value of our company," Nacchio said.
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