TEXT - Fitch cuts CenturyLink ratings to 'BB+'

Wed Feb 13, 2013 4:41pm EST

Feb 13 - Fitch Ratings has downgraded the Issuer Default Ratings (IDRs) of
CenturyLink, Inc. (CenturyLink) and its subsidiaries to 'BB+' from
'BBB-'. The downgrade to 'BB+' also applies to CenturyLink's approximately 
$6.25 billion of senior unsecured notes and its senior unsecured revolving 
credit facility. The outstanding $10.1 billion aggregate amount of senior 
unsecured notes of Qwest Corporation (QC) and Embarq Corporation (Embarq) have 
been affirmed at 'BBB-'. Fitch has withdrawn the 'F3' short-term IDR and 
commercial paper (CP) rating associated with CenturyLink's currently unused CP 
program. A full list of rating actions is provided at the end of this release. 
The Rating Outlook is Stable. 

The rating actions stem from changes in CenturyLink's financial policy announced
today. The company will initiate a common stock repurchase program, which while 
accompanied by a dividend reduction, will result in a lower level of debt 
reduction over the next two years than previously incorporated in Fitch's 
expectations. The company plans to repurchase $2 billion in common stock by 
February 2015, primarily funded from free cash flow (FCF). Annual FCF improves 
by approximately $450 million as a result of a reduction in the common stock 
dividend of approximately 25%, but on a net basis, cash returned to shareholders
will increase.

In Fitch's opinion, CenturyLink's change in financial policy will lead to a 
credit profile no longer reflective of a 'BBB-' rating, as CenturyLink is not 
expected to reduce leverage to the 2.5x threshold Fitch believes necessary for 
CenturyLink to maintain an investment grade rating. Prior to the policy change, 
Fitch had expected CenturyLink to reduce leverage to 2.5x by the end of 2014 
(net leverage was approximately 2.7x at year-end 2012). Under the revised 
financial policy, CenturyLink has articulated a goal to maintain net leverage 
under 3.0x, and expects to use a portion of FCF to reduce debt. 

KEY RATING DRIVERS

The following factors support the rating:

--Fitch's ratings are based on the expectation that CenturyLink will demonstrate
steady improvement in its revenue profile over the next couple of years;

--FCFs are expected to strengthen with the reduction in the dividend, and 
liquidity is expected to remain relatively strong;

--Execution risks related to the integration of Qwest Communications 
International, Inc. (Qwest) and Savvis, Inc. (Savvis) are nearly behind the 
company; and

--The affirmation of QC's and Embarq's issue ratings is based on the relatively 
lower leverage of the two entities, and their respective debt issues' senior 
position in the capital structure relative to CenturyLink.

The following concerns are embedded in the rating:

--The company's change in financial policy, which incorporates the maintenance 
of net leverage of up to 3.0x, less restrictive than its previous mid-2x target;

--The decline of traditional voice revenues, primarily in the consumer sector, 
from wireless substitution and moderate levels of continuing cable telephony 
substitution.  Although such revenues are declining in the revenue mix and are 
being replaced by broadband and business services revenues, these latter sources
have lower margins. 

Fitch expects CenturyLink's revenues to decline slightly in 2013, and reach 
stability in 2014. Revenues from high-speed data and certain advanced business 
services, including the managed hosting and cloud computing services offered by 
Savvis and a modest but growing level of revenues from facilities-based video, 
are expected to contribute to stability. 

On a net debt basis, leverage in 2012 was approximately 2.7x (excluding 
integration and merger-related costs), consistent with the 2.7x to 2.8x range 
Fitch expects over the next several years. Debt reduction in 2013 and 2014 is 
expected to be modest. Additionally, there will be some pressure on EBITDA as 
there are lower incremental merger-related cost savings in 2013 than in 2012.  

CenturyLink's total net debt was $20.4 billion at Dec. 31, 2012. Financial 
flexibility is provided through a $2 billion revolving credit facility, which 
matures in April 2017. As of Dec. 31, 2012, approximately $1.18 billion was 
available on the facility. CenturyLink also has a $160 million uncommitted 
revolving letter of credit facility. 

The principal financial covenants in the $2 billion revolving credit facility 
limit CenturyLink's debt to EBITDA for the past four quarters to no more than 
4.0x and EBITDA to interest plus preferred dividends (with the terms as defined 
in the agreement) to no less than 1.5x. QC has a maintenance covenant of 2.85x 
and an incurrence covenant of 2.35x. The facility is guaranteed by Embarq, Qwest
Communications International Inc. and Qwest Services Corporation (QSC). 

In 2013, Fitch expects CenturyLink's FCF (defined as cash flow from operations 
less capital spending and dividends) to range from $1 billion to $1.3 billion. 
Expected FCF levels reflect capital spending within the company's guidance range
of $2.8 billion to $3 billion. Within the capital budget, areas of focus for 
investment primarily include continued spending on fiber-to-the-tower, data 
center/hosting, broadband expansion and enhancement, as well as spending on 
IPTV, the company's facilities based video program. 

Fitch believes CenturyLink has the financial flexibility to manage upcoming 
maturities due to its FCF and credit facilities. Debt maturities in 2013 and 
2014 are approximately $1.1 billion and $0.7 billion, respectively.

Going forward, Fitch expects CenturyLink and QC will be CenturyLink's only 
issuing entities. CenturyLink has a universal shelf registration available for 
the issuance of debt and equity securities. 

RATING SENSITIVITIES:

Fitch does not expect a positive rating action over the next several years based
on its assessment of the competitive risks faced by CenturyLink and expectations
for leverage.

A negative rating action could occur if:

--Consolidated leverage through, but not limited to, operational performance, 
acquisitions, or debt-funded stock repurchases, is expected to be 3.5x or 
higher; and

--For QC or Embarq, leverage trends toward 2.5x or higher (based on external 
debt).

Fitch has taken the following rating actions.  The Rating Outlook is Stable.

CenturyLink
--Long-term IDR downgraded to 'BB+' from 'BBB-'; 
--Senior unsecured $2 billion revolving credit facility downgraded to 'BB+' from
'BBB-'; 
--Senior unsecured debt downgraded to 'BB+' from 'BBB-';
--Short-term 'F3' IDR withdrawn;
--Commercial paper 'F3' rating withdrawn.

Embarq Corp.
--Long-term IDR downgraded to 'BB+' from 'BBB-';
--Senior unsecured notes affirmed at 'BBB-'.

Carolina Telephone & Telegraph (CT&T)
--IDR downgraded to 'BB+' from 'BBB-';
--Debentures affirmed at 'BBB-'.

Embarq Florida, Inc. (EFL)
--IDR downgraded to 'BB+' from 'BBB-';
--First mortgage bonds downgraded to 'BBB-'from 'BBB'.

Qwest Communications International, Inc.
--IDR downgraded to 'BB+' from 'BBB-';
--Senior unsecured notes downgraded to 'BB+' from 'BBB-'.

Qwest Corporation
--IDR downgraded to 'BB+' from 'BBB-';
--Senior unsecured notes affirmed at 'BBB-'.

Qwest Services Corporation
--IDR downgraded to 'BB+' from 'BBB-'.

Qwest Capital Funding
--IDR at downgraded to 'BB+' from 'BBB-';
--Senior unsecured notes downgraded to 'BB+' from 'BBB-'.