CU_10.7.09 Final

7/29/2019 CU_10.7.09 Final

1/43

1

Advanced Corporate FinanceUniversity of Colorado-BoulderLeeds School of BusinessOctober 7, 2009

Joseph J. Euteneuer

Executive Vice President & CFO

Qwest Communications

7/29/2019 CU_10.7.09 Final

2/43

2

Agenda

Background / The Business Environment The Streets Perspective

Creating Shareholder Value

Balanced Approach to Capital and Investing

September 2009 Bond Offering

Asset Strategic Review

7/29/2019 CU_10.7.09 Final

3/43

3

Qwests Business

Qwest14-state Local Service Area

Qwest POPs

VoIP Deployed CitiesVoIP Deployed Cities

Qwest14-state Local Service Area

Qwest POPs

VoIP Deployed CitiesVoIP Deployed Cities

Qwest14-state Local Service AreaQwest14-state Local Service Area

Qwest POPs

VoIP Deployed CitiesVoIP Deployed CitiesVoIP Deployed CitiesVoIP Deployed Cities

7/29/2019 CU_10.7.09 Final

4/43

4

Euteneuer to Lead QwestsFinancesBy Roger ChengB5

Qwest Communications International

Inc. hired former XM Satellite Radio

and Comcast Corp. executive Joseph

Euteneuer to serve as chief financial

officer

Crisis on Wall Street as LehmanTotters, Merrill Is Sold, AIGSeeks to Raise Cash Fed WillExpand Its Lending Arsenal in aBid to Calm Markets; Moves Capa Momentous Weekend forAmerican FinanceBy Carrick Mollenkamp, Susanne Craig, Serena Ng and Aaron

Lucchetti

A1

The American financial system was shaken to its core on Sunday.

Lehman Brothers Holdings Inc. faced the prospect of liquidation,

and Merrill Lynch & Co. agreed to be sold to Bank of America

Corp.

September 15, 2008
http://online.wsj.com/http://online.wsj.com/

7/29/2019 CU_10.7.09 Final

5/43

5

Total US Consumer Confidence Index: 3Q06 - 2Q10E

0

20

40

60

80

100

120

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

CC

Index(1985=100

)

Single Family Homes - Building Permits

2006 - 2010E

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

BuildingPermits-National(M)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

National

The Business Environment Post 9/15

Source: the Conference Board and NIPA; Moodys Economy.com Source: Bureau of Labor Statistics: Current Population Survey; Moody's Economy.com

Source: Office of US District Courts; Moodys Economy.comSource: Bureau of Census: Form C-404; Moody's Economy.com

U.S. Unemployment Rate: 2008 - 2011E

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

US US last qtr view

U.S. Business Bankruptcy Filings: 3Q062010E

7/29/2019 CU_10.7.09 Final

6/43

66

The Streets Perspective of Q

7/29/2019 CU_10.7.09 Final

7/43

77

2009 Total Qwest Guidance

Qwest is on track to meet Guidance and AnalystConsensus in 2009

7

2008 2009 Guidance 2009 Consensus

Revenue 13,475$ n/a 12,367$

External Adj. EBITDA 4,547$ $4,250 - $4,400 4,351$

CapEx 1,777$ $1,700 or less 1,629$

Normalized Free Cash Flow 1,439$ $1,500 - $1,600 1,561$

7/29/2019 CU_10.7.09 Final

8/43

8

Buy/$5.00

8

Bank of America, David Barden Key Points

Positive view of Qwest is based on several factors:1. Management focus on extracting value is a positive

2. Potential for enhanced returns to shareholders

Increased the probability of Qwest fully pre-funding the potentialput of its convertible senior notes in 2010

3. Expect another wave of consolidation to emerge in 12 to 18months

4. Valuation is attractive

Qwests EBITDA multiple is the lowest in the sector while its 09E

FCF yield of 21% is among the highest

7/29/2019 CU_10.7.09 Final

9/43

9

Hold/No Price Target

9

Morgan Stanley, Simon Flannery Key Points

Investment Conclusion Successfully tapped the credit markets, partially addressing its

short-term maturity profile, easing concerns over its dividendsustainability

The company has the ability to sustain its dividend:

Substantial cash on hand

Strong cash generation

A ~$945M undrawn credit facility (as of July 29)

Capital budget flexibility

Revenue Generating Unit (RGU) growth, and its impact onrevenue growth, is the bigger obstacle for the stock

Without the stabilization in RGU trends, it may be harder toattract longer-term investors

7/29/2019 CU_10.7.09 Final

10/43

10

Sell/$2.75

10

Goldman Sachs, Jason Armstrong Key Points

Revenue pressure making margin gains difficult to hold The glimmer of hope in AT&T/Verizon results around a

consumer wireline inflection was not present at Qwest

We still expect 2010 revenues to decline another 3.4%

This will lead to 150 bp in 2010 margin pressure, with an

EBITDA decline of 7.4% to $4.0 bn Tough balancing act ahead

Peers have invested in video, which appears to be stabilizing lineloss, Qwest line loss stepped up another 50 bp QoQ

Comparisons versus AT&T and Verizon in consumer are likely tobecome even more unfavorable given the current trajectory

Attempts at structural value creation through monetizing certainassets seems unlikely as shown through the recent unsuccessfulauction of the companys backbone business

7/29/2019 CU_10.7.09 Final

11/43

1111

Creating Shareholder Value

Sustainable Free Cash Flow Growth

7/29/2019 CU_10.7.09 Final

12/43

1212

Theoretically how share price is determined:Revenue OpEx = EBITDA

EBITDA Capex Interest Working Capital = FCF

FCF *Perception Value = Total Value

Total Value Net Debt (Debt-Cash) = Equity Value

Equity Value/Shares Outstanding = Share Price

The value of a company is determined by itsexpected discounted Free Cash Flow

*Perception Value - Shorthand metric to reflect the expected Discounted cashflows of a business, discount rate (including risk) and expected

cash flows growth.

Shareholder Value

IncreasingShareholder

Value

Return onInvestment

Capital

WeightedAverage

Cost of Capital

SustainableFree Cash Flow

Growth

7/29/2019 CU_10.7.09 Final

13/43

1313

Analyst Estimates for Q

Implied Implied

Adj EBITDA Adj FCF

Perception

Value* Price Target Adj EBITDA Adj FCF

Perception

Value* Price Target

Bank of America 4.24$ 1.49$ 12.9x 4.00$ 4.33$ 1.59$ 13.2x 5.00$

BMO 4.31 1.39 13.8x 4.00 4.34 1.23 16.4x 4.50

Citi 4.28 1.42 15.9x 6.00 4.40 1.59 13.8x 5.50

Goldman Sachs 4.17 1.33 12.5x 2.50 4.34 1.59 10.7x 2.75

JP Morgan 4.21 1.44 12.1x 3.00 4.33 1.65 13.7x 6.00

Morgan Stanley 4.11 1.36 15.2x 4.93 4.36 1.55 n/a n/aOppenheimer 4.22 1.40 n/a n/a 4.32 1.51 n/a n/a

Thomas Weisel 4.34 1.43 13.1x 3.75 4.32 1.50 12.9x 4.00

UBS 4.14 1.32 13.9x 3.50 4.41 1.55 12.2x 3.80

Wells Fargo 4.28 1.65 n/a n/a 4.42 1.69 n/a n/a

Analyst Consensus 4.20 1.40 13.9x 4.19$ 4.35 1.56 13.0x 4.61$Max Estimate 4.31 1.65 15.9x 6.00 4.42 1.72 16.4x 6.00Min Estimate 4.11 1.32 12.1x 2.50 4.30 1.23 10.7x 2.75

Budget 4.40 1.50 13.0x 4.40 1.50 13.0x

Guidance 4.2 to 4.4 1.4 to 1.5 4.25 to 4.4 1.5 to 1.6

* Implied Perception Value is defined as Q Enterprise value divided by the analyst's adjusted FCF estimate

Feb-09 Sep-09

7/29/2019 CU_10.7.09 Final

14/43

14

FCF x

Implied

Perception

Value

=Total

ValueFCF x

Implied

Perception

Value

=Total

Value

1,591 x 13.2 = 20,942 1,589 x 10.7 = 17,065

Total

Value- Net Debt =

Equity

Value

Total

Value- Net Debt =

Equity

Value

20,942 - 12,327 = 8,615 17,065 - 12,327 = 4,738

Equity

Value Shares =

Price

Target

Equity

Value Shares =

Price

Target8,615 1,723 = 5.00$ 4,738 1,723 = 2.75$

Bank of America Valuation Model Goldman Sachs Valuation Model

14

David Bardens Perception of Q:

Confident that Q will resolve debttowers through refinancing

Meaningful results in businessmarkets

Consumer access line loss shouldcontinue to slow as FTTN matures

Views IXC auction as a positive

indication that Q is exploring value

Jason Armstrongs Perception of Q:

Intense revenue pressure

- Large wholesale disconnects

- Mass markets pressureintensified

Unfavorable FTTN trajectory

Unsuccessful IXC auction

Perception Value Models

7/29/2019 CU_10.7.09 Final

15/43

1515

Perception Value Sensitivity Analysis

FCF 11.4x 11.6x 11.8x 12.0x 12.2x 12.4x 12.6x 12.8x 13.0x 13.2x 13.4x 13.6x 13.8x1,800$ 4.76$ 4.96$ 5.17$ 5.38$ 5.59$ 5.80$ 6.01$ 6.22$ 6.43$ 6.64$ 6.84$ 7.05$ 7.26$1,750$ 4.42$ 4.63$ 4.83$ 5.03$ 5.24$ 5.44$ 5.64$ 5.85$ 6.05$ 6.25$ 6.46$ 6.66$ 6.86$1,700$ 4.09$ 4.29$ 4.49$ 4.69$ 4.88$ 5.08$ 5.28$ 5.47$ 5.67$ 5.87$ 6.07$ 6.26$ 6.46$1,650$ 3.76$ 3.95$ 4.15$ 4.34$ 4.53$ 4.72$ 4.91$ 5.10$ 5.29$ 5.49$ 5.68$ 5.87$ 6.06$1,600$ 3.43$ 3.62$ 3.80$ 3.99$ 4.17$ 4.36$ 4.55$ 4.73$ 4.92$ 5.10$ 5.29$ 5.47$ 5.66$1,561$ 3.17$ 3.35$ 3.54$ 3.72$ 3.90$ 4.08$ 4.26$ 4.44$ 4.62$ 4.80$ 4.99$ 5.17$ 5.35$

1,500$ 2.77$ 2.94$ 3.12$ 3.29$ 3.47$ 3.64$ 3.81$ 3.99$ 4.16$ 4.34$ 4.51$ 4.69$ 4.86$1,450$ 2.44$ 2.61$ 2.78$ 2.94$ 3.11$ 3.28$ 3.45$ 3.62$ 3.79$ 3.95$ 4.12$ 4.29$ 4.46$1,400$ 2.11$ 2.27$ 2.43$ 2.60$ 2.76$ 2.92$ 3.08$ 3.25$ 3.41$ 3.57$ 3.73$ 3.90$ 4.06$1,350$ 1.78$ 1.93$ 2.09$ 2.25$ 2.40$ 2.56$ 2.72$ 2.87$ 3.03$ 3.19$ 3.34$ 3.50$ 3.66$1,300$ 1.45$ 1.60$ 1.75$ 1.90$ 2.05$ 2.20$ 2.35$ 2.50$ 2.65$ 2.80$ 2.96$ 3.11$ 3.26$

= August 2008 (H = $4.01, L = $3.43)

Enterprise Perception Value Multiple

7/29/2019 CU_10.7.09 Final

16/43

1616



1,500$ 2.77$ 2.94$ 3.12$ 3.29$ 3.47$ 3.64$ 3.81$ 3.99$ 4.16$ 4.34$ 4.51$ 4.69$ 4.86$1,450$ 2.44$ 2.61$ 2.78$ 2.94$ 3.11$ 3.28$ 3.45$ 3.62$ 3.79$ 3.95$ 4.12$ 4.29$ 4.46$1,400$ 2.11$ 2.27$ 2.43$ 2.60$ 2.76$ 2.92$ 3.08$ 3.25$ 3.41$ 3.57$ 3.73$ 3.90$ 4.06$1,350$ 1.78$ 1.93$ 2.09$ 2.25$ 2.40$ 2.56$ 2.72$ 2.87$ 3.03$ 3.19$ 3.34$ 3.50$ 3.66$1,300$ 1.45$ 1.60$ 1.75$ 1.90$ 2.05$ 2.20$ 2.35$ 2.50$ 2.65$ 2.80$ 2.96$ 3.11$ 3.26$

= August 2008 (H = $4.01, L = $3.43) = November 2008 (H = $3.38, L = $2.28)


7/29/2019 CU_10.7.09 Final

17/43

1717



1,500$ 2.77$ 2.94$ 3.12$ 3.29$ 3.47$ 3.64$ 3.81$ 3.99$ 4.16$ 4.34$ 4.51$ 4.69$ 4.86$1,450$ 2.44$ 2.61$ 2.78$ 2.94$ 3.11$ 3.28$ 3.45$ 3.62$ 3.79$ 3.95$ 4.12$ 4.29$ 4.46$1,400$ 2.11$ 2.27$ 2.43$ 2.60$ 2.76$ 2.92$ 3.08$ 3.25$ 3.41$ 3.57$ 3.73$ 3.90$ 4.06$1,350$ 1.78$ 1.93$ 2.09$ 2.25$ 2.40$ 2.56$ 2.72$ 2.87$ 3.03$ 3.19$ 3.34$ 3.50$ 3.66$1,300$ 1.45$ 1.60$ 1.75$ 1.90$ 2.05$ 2.20$ 2.35$ 2.50$ 2.65$ 2.80$ 2.96$ 3.11$ 3.26$


= April 2009 (H = $4.06, L = $3.42)


7/29/2019 CU_10.7.09 Final

18/43

1818



1,500$ 2.77$ 2.94$ 3.12$ 3.29$ 3.47$ 3.64$ 3.81$ 3.99$ 4.16$ 4.34$ 4.51$ 4.69$ 4.86$1,450$ 2.44$ 2.61$ 2.78$ 2.94$ 3.11$ 3.28$ 3.45$ 3.62$ 3.79$ 3.95$ 4.12$ 4.29$ 4.46$1,400$ 2.11$ 2.27$ 2.43$ 2.60$ 2.76$ 2.92$ 3.08$ 3.25$ 3.41$ 3.57$ 3.73$ 3.90$ 4.06$1,350$ 1.78$ 1.93$ 2.09$ 2.25$ 2.40$ 2.56$ 2.72$ 2.87$ 3.03$ 3.19$ 3.34$ 3.50$ 3.66$1,300$ 1.45$ 1.60$ 1.75$ 1.90$ 2.05$ 2.20$ 2.35$ 2.50$ 2.65$ 2.80$ 2.96$ 3.11$ 3.26$


= April 2009 (H = $4.06, L = $3.42) = September 2009 (H = $3.72, L = $3.34)


7/29/2019 CU_10.7.09 Final

19/43

19


1,500$ 2.77$ 2.94$ 3.12$ 3.29$ 3.47$ 3.64$ 3.81$ 3.99$ 4.16$ 4.34$ 4.51$ 4.69$ 4.86$1,450$ 2.44$ 2.61$ 2.78$ 2.94$ 3.11$ 3.28$ 3.45$ 3.62$ 3.79$ 3.95$ 4.12$ 4.29$ 4.46$1,400$ 2.11$ 2.27$ 2.43$ 2.60$ 2.76$ 2.92$ 3.08$ 3.25$ 3.41$ 3.57$ 3.73$ 3.90$ 4.06$1,350$ 1.78$ 1.93$ 2.09$ 2.25$ 2.40$ 2.56$ 2.72$ 2.87$ 3.03$ 3.19$ 3.34$ 3.50$ 3.66$1,300$ 1.45$ 1.60$ 1.75$ 1.90$ 2.05$ 2.20$ 2.35$ 2.50$ 2.65$ 2.80$ 2.96$ 3.11$ 3.26$




19


7/29/2019 CU_10.7.09 Final

20/43

20

FCF 11.4x 11.6x 11.8x 12.0x 12.2x 12.4x 12.6x 12.8x 13.0x 13.2x 13.4x 13.6x 13.8x

1,800$ 4.76$ 4.96$ 5.17$ 5.38$ 5.59$ 5.80$ 6.01$ 6.22$ 6.43$ 6.64$ 6.84$ 7.05$ 7.26$1,750$ 4.42$ 4.63$ 4.83$ 5.03$ 5.24$ 5.44$ 5.64$ 5.85$ 6.05$ 6.25$ 6.46$ 6.66$ 6.86$

1,700$ 4.09$ 4.29$ 4.49$ 4.69$ 4.88$ 5.08$ 5.28$ 5.47$ 5.67$ 5.87$ 6.07$ 6.26$ 6.46$

1,650$ 3.76$ 3.95$ 4.15$ 4.34$ 4.53$ 4.72$ 4.91$ 5.10$ 5.29$ 5.49$ 5.68$ 5.87$ 6.06$

1,600$ 3.43$ 3.62$ 3.80$ 3.99$ 4.17$ 4.36$ 4.55$ 4.73$ 4.92$ 5.10$ 5.29$ 5.47$ 5.66$

1,561$ 3.17$ 3.35$ 3.54$ 3.72$ 3.90$ 4.08$ 4.26$ 4.44$ 4.62$ 4.80$ 4.99$ 5.17$ 5.35$

1,500$ 2.77$ 2.94$ 3.12$ 3.29$ 3.47$ 3.64$ 3.81$ 3.99$ 4.16$ 4.34$ 4.51$ 4.69$ 4.86$

1,450$ 2.44$ 2.61$ 2.78$ 2.94$ 3.11$ 3.28$ 3.45$ 3.62$ 3.79$ 3.95$ 4.12$ 4.29$ 4.46$1,400$ 2.11$ 2.27$ 2.43$ 2.60$ 2.76$ 2.92$ 3.08$ 3.25$ 3.41$ 3.57$ 3.73$ 3.90$ 4.06$

1,350$ 1.78$ 1.93$ 2.09$ 2.25$ 2.40$ 2.56$ 2.72$ 2.87$ 3.03$ 3.19$ 3.34$ 3.50$ 3.66$

1,300$ 1.45$ 1.60$ 1.75$ 1.90$ 2.05$ 2.20$ 2.35$ 2.50$ 2.65$ 2.80$ 2.96$ 3.11$ 3.26$




20


7/29/2019 CU_10.7.09 Final

21/43

2121

Theoretically how share price is determined:Revenue OpEx = EBITDA

EBITDA Capex Interest Working Capital = FCF

FCF *Perception Value = Total Value

Total Value Net Debt (Debt-Cash) = Equity Value

Equity Value/Shares Outstanding = Share Price

The value of a company is determined by itsexpected discounted Free Cash Flow

*Perception Value - Shorthand metric to reflect the expected Discounted cashflows of a business, discount rate (including risk) and expected

cash flows growth.

Shareholder Value

IncreasingShareholder

Value

Return onInvestment

Capital

WeightedAverage

Cost of Capital

SustainableFree Cash Flow

Growth

7/29/2019 CU_10.7.09 Final

22/43

22

Perfecting the Customer Experience

Simplify our Focus to Drive Shareholder Value

Execution

RevenueAdministrative /

OperatingExpense

Capital Expectations

Shareholder Value

NewCustomers

ExistingCustomers

ARPU

WalletShare

AcquisitionCost

ServiceCost

FacilityCost

SharedSupport

3rd PartyPayments

CapitalSpending

PP&EEfficiency

Working

CapitalEfficiency

7/29/2019 CU_10.7.09 Final

23/43

23

23

Balanced Approach to Capital and

Investing

7/29/2019 CU_10.7.09 Final

24/43

24

Comparative Balance Sheet

24

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)

June 30, December 31,

2009 2008

(Dollars in millions)

ASSETS

Current assets:Cash and cash equivalents................................................................. 1,796$ 565$Other................................................................................................. 2,252 2,405

Total current assets............................................................................... 4,048 2,970Property, plant and equipmentnet and other..................................... 16,178 17,171

Total assets........................................................................................... 20,226$ 20,141$

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term borrowings ......................................... 1,085$ 820$Accounts payable and other.............................................................. 2,703 3,033

Total current liabilities......................................................................... 3,788 3,853Long-term borrowingsnet................................................................. 13,038 12,735Other..................................................................................................... 4,451 4,939

Total liabilities..................................................................................... 21,277 21,527Stockholders' equity ............................................................................ (1,051) (1,386)

Total liabilities and stockholders' equity.............................................. 20,226$ 20,141$

7/29/2019 CU_10.7.09 Final

25/43

25

Balance Investment in Growth withReturns to the Shareholder

2009 Investment and Return- $2.8B

(estimated)In millions of dollars

$1,700

$549

$528

Capex Dividend Share Repurchase Debt Repurchase

We started paying dividends in February 2008

The first dividend paid since 2001 We announced a $2B stock buy back program in October 2006

Repurchased $1.8B through December 2008 Still have authorization to buy $.2B

We spent $1.8B in 2008 on CAPEX Estimated CAPEX is $1.7B or less in 2009

25

7/29/2019 CU_10.7.09 Final

26/43

26

$ in Millions

Notes: Convertible notes shown as a maturity in 2010 given investors put rights

$945 million un-drawn revolver matures in October 2010

Paid down $562M QCF notes due August 3, 2009

Information above excludes any potential pension funding starting in 2011

2,168 2,151

1,900

3,389

950

Qwest Debt Maturity Schedule

Unregulated QCIIandQCF(pay

down)RegulatedQC(re-finance)

26

7/29/2019 CU_10.7.09 Final

27/43

7/29/2019 CU_10.7.09 Final

28/43

282828

In the 90 day period between Nov. 2010 and Feb. 2011,

Qwest has $2.6 Billion Debt Maturing (The Elephant)

$2.6 Billion

One Piece at a Time

Combined with cash on hand and expected cash flow generation,

we need to finance approximately $800 Million to finish the meal.

= $.8 Billion

So How Do You Eat an Elephant?

7/29/2019 CU_10.7.09 Final

29/43

29

29

September 2009 Bond Offering

7/29/2019 CU_10.7.09 Final

30/43

30

$502 $505

$680

$799

$517 $484$440

$707

$518

03 04 05 06 07 08 09 10 11

Capital Markets Seize Up

High Yield Bonds ($ in billions)Upcoming Annual

MaturitiesAnnual New Issuance

Investment Grade Corporate (Non-Financial) Bonds($ in billions)

Upcoming AnnualMaturities

Source: CitiSource: Citi Syndicate

$158

$112

$181

$165

$51$62

$71

$40

$143

03 04 05 06 07 08 09 10 11

Annual New Issuance

30

7/29/2019 CU_10.7.09 Final

31/43

31

Qwest Yields and High Yield Market Issuance

$0

$2

$4

$6

$8

$10

$12

$14

1/3/06 4/3/06 7/3/06 10/3/06 1/3/07 4/3/07 7/3/07 10/3/07 1/3/08 4/3/08 7/3/08 10/3/08 1/3/09 4/3/09 7/3/09

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

Weekly HY Issuance YTW on QCII 7.5% Senior Notes due '14

8.59%

21.255%

9/16/08Lehman files

forbankruptcy

3/9/09S&P 500

2009 low

Heightened LBO Activity

Cheap Money unlikely to return to these

levels Heavy issuance volume

($ in bn)

Current yields are

comparable to 2008(pre-Lehman) levels

8/18/09

S t b 14th Wh did Q t l h b d

7/29/2019 CU_10.7.09 Final

32/43

32

September 14th Why did Qwest launch a bondoffering?

Re-finance

decision

Now

Later

Pay rate

as of 9-14

(8.375%)1

Opportunity cost -

could have paid

lower rate

Payhigher rate

(could be 20%+)

Pay

lower rate1

Rates increase

Rates increase

Rates decrease

Rates decrease

1 Best rate issued since 2002 is in the low 7% range

Financing Transaction

On September 14th, Qwest launched and priced a $550m high yield bond offering

Price of 98.244%, coupon of 8.0% and yield of 8.375%

32

S t b 14th Wh did Q t l h b d

7/29/2019 CU_10.7.09 Final

33/43

33

September 14th Why did Qwest launch a bondoffering?

Funding need Debt maturities in 2010/2011 that exceed FCF less dividends

Improved market environment Equity and bond market were greatly improved

S&P 500 up 54% from low of 676 on March 9, 2009 to 1,043 as of Sept. 11, 2009

High yield market has also rallied (bond prices up and yields down) Qwests 7.5% note due 2014 trading yield improved to 8.2% (Sept.

11) down from a high of approximately 20% in December 2008

Decision Raise capital now or at a later date in 2009 or 2010

Waiting = taking a position that interest rates will fall or remain flat Not waiting = protection against rising interest rates

Chance to opportunistically re-finance a portion of funding requirement (dollar cost average) Cost is negative carry (the interest cost on new debt raised prior to the maturity of the old

debt)

33

7/29/2019 CU_10.7.09 Final

34/43

34

34

Asset Strategic Review

7/29/2019 CU_10.7.09 Final

35/43

35

Introduction Opportunity

Qwest Corporation 14-state Local Service Area

Qwest POPs

VoIP Deployed Cities

Qwest Central Offices

Qwest Communications International Inc. (QCII)

Unregulated parent company traded on the NYSE Qwith a state-of-the-art nationwide fiber optic networkand advanced product offerings

Regulated Regional Bell Operating Company (RBOC)telecom provider in 14 western states with asignificant customer base:

Third largest local telephone company 10.9 million access lines 2.9 million high-speed Internet subscribers 853K video subscribers

Potential Opportunity Qwest received an unsolicited inquiry from a

company that was interested in purchasing assets

(property plant & equipment, customers, revenueand employees)

The assets in question were not a separate stand-alone business unit with financial statements

1) As of Q2 2009

7/29/2019 CU_10.7.09 Final

36/43

36

Unsolicited Offer for Assets - Summary

Company receives an unsolicited offer from a buyer Corporate governance issues

Board has a fiduciary duty to the shareholders to evaluate anacquisition proposal

Internal and external counsel consulted

Meetings with management, the board of directors andconsultants / advisors

Comprehensive review of the assets and operations undertaken

Decision to run competitive bidding process

Outside advisors engaged to manage process Evolution of offers concluded the asset was more valuable to

Qwest shareholders

No disclosure requirement until an actual agreement is reached

Identify the Specific Assets Due Diligence

7/29/2019 CU_10.7.09 Final

37/43

37

Identify the Specific Assets Due DiligenceProcess

Physical Assets Customer Assets Human Capital

Detailed process toidentify specificallywhat physical assetsthe buyer wasinterested in

For example: fiber in

the ground from city Ato city B, etc.

Detailed process to identifywhat customer contractsand revenues would beincluded in the sale

Many lawyers reviewingcontracts

Audited financial statementsneeded to be created

Detailed process toidentify the employeesthat would be includedin the sale of assets

Separation of relatedassets (e.g., real

estate, PCs, e-mailnetworks, etc.)

Goal is to determine what assets would be sold and, therefore, the cash flow stream that would be leavingthe company in exchange for a purchase price

7/29/2019 CU_10.7.09 Final

38/43

38

Valuation Value to a Buyer of Assets

NPV (net present value) of the cash flows discounted at the companys WACC (weighted average costof capital) is the value of purchasing the assets inclusive of synergy value

2,0002,100

2,2002,300

2,400

800900

1,0001,100

1,200

0

500

1000

1500

2000

2500

3000

2010 2011 2012 2013 2014

Revenue FCF

Asset Purchase

Buyer will estimate futurecash flows

Identification of synergiesis typically a significantvalue driver

For example,elimination ofduplicative overhead

Considerations

Not actual numbers /For illustrative purposes only

7/29/2019 CU_10.7.09 Final

39/43

39

Valuation Value of Retaining Assets

NPV (net present value) of the cash flows discounted at the companys WACC (weighted average costof cost of capital) is the value of retaining the assets plus the avoided transaction costs and dis-synergies

2,000

2,200

2,400

2,600

2,800

1,0001,100

1,2001,300

1,400

0

500

1000

1500

2000

2500

3000

2010 2011 2012 2013 2014

Revenue FCF

Asset Sale

Review of assets andoperations

Sale of assets mayinvolve dis-synergies

For example,

corporate overheadallocated over asmaller revenue base

Separation of assetsinvolves transaction costs

Considerations

Not actual numbers / For illustrative purposes only

7/29/2019 CU_10.7.09 Final

40/43

40

Evaluation of the Purchase Offer

ConsiderationExecution

RiskFinancial Markets

Risk

Currency utilized could be: Cash

Stock Debt Commercial agreements Combination of the above

Terms & conditions of contract

Time to close Impact to the business

between announcementand closing Regulatory risk sale

may be delayed orblocked by thegovernment

Time and cost to extractthe assets (e.g., billing

systems)

Evaluation of the buyers

ability to raise financing

Shareholder perceptionof the offer Exposure on debt pricing

A purchase proposal can be very simple or extremely complex

7/29/2019 CU_10.7.09 Final

41/43

41

Conclusion

Value of retaining the assets wasgreater than purchase price proposedby the buyer

7/29/2019 CU_10.7.09 Final

42/43

42

Conclusion

Qwest Completes Strategic Review of Long Distance Network Asset

Company Reaffirms Full Year 2009 Guidance

DENVER, June 8, 2009 Qwest Communications International Inc. (NYSE: Q) and its Board of Directors today announced the outcome of itsstrategic review of its long distance network asset.

After receiving unsolicited indications of interest from potential purchasers of Qwest's long distance network asset, the company and its Board ofDirectors undertook a comprehensive review of this asset and its operations. Following this review, the company commenced a competitive biddingprocess. Although there was significant interest in this process from prospective buyers, the company and its Board of Directors have determined thatthe long distance network asset holds far more value to Qwest shareholders and is more strategically important to Qwest and its customers than isthe alternative of pursuing a transaction.

Qwest reaffirms its guidance for the full year 2009, expecting adjusted free cash flow to be $1.4 to $1.5 billion, full year adjusted EBITDA of $4.2 to$4.4 billion, inclusive of an expected increase in non-cash pension and OPEB expense of $200 million, and capital expenditures of $1.8 billion orlower.

Qwest remains confident in its outlook for 2009 and the ability of its business to continue to perform, said Edward A. Mueller, chairman and chiefexecutive officer of Qwest. At the same t ime, we are committed to taking steps that will benefit our shareholders, customers and employees in everydecision we make. We have always taken a disciplined, prudent approach to assessing our business in this ever changing industry. The review weconducted confirmed that our nationwide network is a tremendous asset and delivers best-in-class telecommunications services to businesses andgovernment agencies throughout the country. We are committed to serving those valued customers and remain focused on increasing shareholdervalue and perfecting the customer experience."

Second Quarter 2009 Earnings Call

The Company will announce its second quarter 2009 financial and operational highlights on Wednesday, July 29, 2009, at 7 a.m. EDT. Qwestmanagement will host a conference call at 9 a.m. EDT on the same day to discuss the companys perspective on the results and answer questions.

7/29/2019 CU_10.7.09 Final

43/43

Date post:	04-Apr-2018
Category:	Documents
Upload:	harini-ramaswamy
View:	214 times
Download:	0 times

CU_10.7.09 Final

Documents