Fitch Rates Proposed Qwest Corporation Offering 'BBB-'

Fitch Ratings has assigned a 'BBB-' rating to Qwest Corporation's proposed offering of notes. Proceeds from the offering, combined with $557 million in net proceeds received on Sept. 21, 2011 from a retail note offering, will be used partially or fully to redeem QC's $1.5 billion 8.875% notes prior to their maturity on March 15, 2012. On June 30, 2011, QC had in broad outline $8.4 billion in long-term debt outstanding. QC is an indirect wholly owned subsidiary of CenturyLink Inc.. Fitch's Issuer Default Rating on QC and CenturyLink is 'BBB-' and the Outlook for all ratings is Stable.

Fitch's ratings for QC and CenturyLink are based on the expectations that CenturyLink will demonstrate a very gradual improvement in its revenue profile over the straightway several years in combination with solid leverage for the rating category, strong free cash flows and strong liquidity. Low cash tax payments arising from bonus depreciation and the net operating losses of its subsidiary, Qwest Communications International Inc., contribute to FCF levels remaining strong during the company incurs front-end-loaded integration costs. To boot, CenturyLink's acquisition of Savvis, Inc. in July 2011 strengthens the company's revenue growth profile. These supporting factors are balanced against the decline of traditional voice and long distance earnings, primarily in the consumer sector, from wireless substitution and moderate levels of continuing cable telephony substitution. Moreover, execution risk is present with regard to the integration of Qwest and Savvis, with the risk mitigated by management's experience in rationalizing previous mergers.

Fitch expects CenturyLink's gross debt/EBITDA to approximate 2.5 times or less in 2012, the first full year afterwards the close of the Savvis transaction, and by degree decline thereafter as debt is reduced. Fitch notes that as a result of the pressures in the landline business, in order to maintain the current rating level, CenturyLink will need to maintain leverage at a level of 2.5x or below and its revenue profile will have to remain on the path toward a return to growth. Should the contingency arise, Fitch believes CenturyLink will need to display a dividend payout of 55% or less in order to maintain financial flexibility. Fitch will evaluate the payout in the context of spending on growth initiatives.

The 2013 -2014 timeframe

Fitch expects CenturyLink's revenue to stabilize in the 2013 -2014 timeframe. Contributing to stability are the continued growth of high-speed data and certain advanced business services, including the managed hosting and cloud computing services offered by Savvis. Additionally, Fitch expects a modest however growing level of earnings from facilities-based video to contribute stability to the consumer revenue base. In its entirety, Fitch expects revenue declines to be in the low single digits by 2012, as the most exposed revenue stream - consumer voice - is declining in importance. Fitch will re-evaluate the Rating Outlook if earnings are not making progress toward stability.

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