Exhibit 99.1
[LOGO] 1025 Eldorado Boulevard
Broomfield, Colorado 80021
www.Level3.com
NEWS RELEASE
Level 3 Issues Statement
BROOMFIELD, Colo., February 1, 2002 -- Level 3 Communications, Inc.
(Nasdaq:LVLT) today issued the following statement, which can be attributed to
James Q. Crowe, chief executive officer:
"On Jan 29, 2002, we issued a news release that included the following:
'Level 3 has a $1.775 billion Senior Secured Credit Facility and is in
compliance with all terms and conditions under this facility as of December 31,
2001. Based on first quarter 2002 projections, the company also expects to be in
compliance as of the end of the first quarter. If the current rate of sales,
cancellations, and disconnects were to continue, the company may violate a
revenue-based financial covenant as early as the end of the second quarter. To
the extent the company's operational performance improves or it completes
acquisitions that generate additional revenue, a potential violation of the
covenant could be delayed beyond the second quarter of 2002 or eliminated
entirely.'
"This statement has obviously caused concern on the part of a number of
investors, which has been further exacerbated by press reports that seem to
indicate that Level 3 was giving some sort of implied notice of an impending
filing for protection from its creditors under the federal bankruptcy statutes.
This speculation is no doubt fueled by the spate of bankruptcy filings in the
telecommunications sector, including two this very week.
"This is an incorrect interpretation of our statement. I believe our
situation is markedly different and financially much better than the companies
in our sector that have sought bankruptcy protection.
"In the fall of 1999, Level 3 finalized an agreement to borrow money from a
group of financial institutions, primarily commercial banks. This 'senior
secured credit facility' agreement provided for both a term loan that today is
fully drawn or borrowed at $1.125
billion and a $650 million revolving loan (that is, a loan that can be
borrowed, repaid and re-borrowed over its term) which today has yet to be
borrowed.
"The bank agreement contains several terms that Level 3 agreed to in return
for receiving the loans. Since the institutions loaning the money are keenly
interested in being repaid, a central part of the agreement is the terms and
schedule of interest and principal payments.
"As is customary for these credit facilities, Level 3's senior secured
credit facility agreement includes a series of provisions, called covenants,
that generally identify actions that Level 3 is not permitted to take without
prior bank approval, and certain levels of financial and operational performance
that Level 3 must achieve or maintain to demonstrate the financial and
operational health of the business. The covenants in Level 3's agreement include
covenants relating to network construction milestones, minimum revenues and
limitations on incurrence of additional debt.
"Since, as this past year has demonstrated, unforeseen events do occur, the
agreement specifies the process by which covenants can be modified or waived,
generally to address conditions that were not anticipated at the time the
original agreement was completed. For modifications and waivers considered
central or core to the intent of the agreement, such as payment schedules and
interest rates, the agreement requires - in addition to the approval of Level 3
- - the affirmative vote of 100% of the lenders. For other non-core covenant
modifications and waivers, including covenants designed to measure the financial
performance of the business, the agreement requires, in addition to the approval
of Level 3, an affirmative vote of lenders having more than 50% of the
commitments to make loans to Level 3.
"As is common with such agreements, Level 3 and the lenders have concluded
a variety of covenant modifications and waivers. Just this past month, the
company and the lending banks agreed to a covenant waiver to allow for the sale
of certain of Level 3's Asian operations.
"The covenant referenced in the January 29th news release is commonly
referred to as the Minimum Telecom Revenue covenant.
"The Minimum Telecom Revenue covenant is calculated on a quarterly basis
based on revenue for the prior four quarters. The covenant specifies a minimum
of $1.5 billion in telecom revenue as of year-end 2001. The required covenant
level grows to $2.3 billion by year-end 2002.
"Based on the fourth quarter results Level 3 announced on January 29th,
including the asset impairment charge that was described in detail at that time,
Level 3 is in full compliance with all covenants under the senior secured credit
facility.
"Based on the company's first quarter projections that were also announced
on January 29th, we expect to be in full compliance with all covenants for the
first quarter.
"It is possible that, if our current rate of sales and current rate of both
cancellations and disconnects continue, we may have a covenant violation with
respect to the Minimum Telecom Revenue financial covenant later this year. A
potential financial covenant violation could occur after the second quarter,
depending on our results during that quarter. However, to the extent Level 3's
operational performance improves, or Level 3 completes acquisitions that
generate sufficient incremental cash revenue that meets the requirements of the
Minimum Telecom Revenue covenant, Level 3 may never violate this covenant.
"It is also worth noting that if we were to violate the Minimum Telecom
Revenue covenant, this would be considered a financial covenant violation, which
we believe is far less serious than a potential payment violation. We believe
that the company's ability to service its debt, absent economic improvement, has
been enhanced significantly over the course of the past year as we've
restructured the balance sheet, sold our Asian operations, and reduced
expenditures in line with revenue. As a result, we do not anticipate any
scenario whereby we would risk a payment violation.
"Recognizing, however, that we might violate a financial covenant later in
the year under certain scenarios, we have begun discussions with JP Morgan
Chase, the administrative agent for our senior secured credit facility, to
assess appropriate modifications to the senior secured credit facility
agreement. As is customary for these kinds of amendments, banks look for several
concessions in exchange for these modifications, including reductions in
principal, higher interest rates or changes to other terms of the agreement.
"We believe we will be able to resolve these issues prior to any covenant
violation.
"A number of parties have asked why Level 3 is different from other
companies in our sector that gave notice of potential covenant violations and in
very short order filed for protection from their creditors under the Federal
bankruptcy laws.
"We believe that there are clear differences between our company and those
that have sought bankruptcy protection. These differences include:
o As a matter of fundamental strategy, Level 3 prefunded its operations to
free cash flow breakeven, including the cost of interest and principal
payments. As a consequence, we had the available liquidity to deal with
both the effects of the economic slowdown and to take advantage of
opportunities to improve cashflow. The recently announced acquisition of
McLeodUSA's ISP access business and the subsequent, related announcement of
a $100 million plus contract with SBC is a clear example.
o Over one year ago, we announced a corporate-wide effort to focus our
customer sales efforts on established companies with growing needs for our
services. The completion of our U.S. and European networks and the
development of unique operating capabilities like the award winning ONTAPSM
provisioning system have greatly aided this effort. The results are
apparent in the substantial number of
customer wins with companies like AOL, Microsoft, Verizon,Sony and Cox
Communications.
o Over one year ago, Level 3 began taking actions to adjust our cost and
capital structure to what we saw as an accelerating slowdown in the telecom
industry. We cut capital expenditure projections by approximately $5
billion between the beginning of 2001 and the time at which we estimate we
will achieve free cash flow breakeven. We also cut operating expense
projections by approximately $1.5 billion over the same period. Finally, we
reduced debt by about $2 billion on what we believe are favorable terms.
This is in stark contrast to many of our competitors, who indicated that
they were experiencing no difficulties during the first half of 2001, and
as a result did not take the difficult steps to reduce costs and reduce
leverage.
o As a result of the actions that we have taken, we are able to reiterate our
conviction that we remain fully funded to free cash flow breakeven, with an
adequate cushion, in accordance with our business plan. Our confidence is
underscored by our recent announcement that we expect to be EBITDA positive
for the first quarter and remain so in the future. We believe that this is
a significant milestone, particularly given the fact that we completed our
network less than one year ago.
o Finally, and of critical importance, is the contrast between Level 3's
possible covenant violation and those of certain companies that
subsequently sought protection from their creditors under the bankruptcy
statutes. If we were to violate the Minimum Revenue Telecom covenant, this
would be a non-payment covenant violation, which, again, we believe is far
less serious than a potential payment violation. Based on our financial
situation as it exists today, we do not envision any scenario whereby Level
3 would have a payment default with respect to not only our senior secured
credit facility, but also any other Level 3 debt. As a consequence, we also
do not anticipate a scenario under which Level 3 would expect to seek
protection from its creditors under the bankruptcy statutes.
"Over the past year we have reiterated our conviction that the services we
sell are a fundamental part of the US and global economy. Although the timing is
hard to predict with accuracy, the current lack of investment in our industry,
we believe, will lead to an imbalance between supply and demand in the
foreseeable future.
"Our goal has been, and continues to be, to ensure that Level 3 has the
operational and financial strength to take advantage of the opportunities that
are sure to be available as our economy begins to rebound. I am confident that
we are in just such a position."
About Level 3 Communications
Level 3 (Nasdaq:LVLT) is a global communications and information services
company offering a wide selection of services including IP services, broadband
transport,
colocation services and the industry's first Softswitch based services. Its
Web address is www.Level3.com.
Forward Looking Statement Some of the statements made by Level 3 in this
press release are forward-looking in nature. Actual results may differ
materially from those projected in forward-looking statements. Level 3 believes
that its primary risk factors include, but are not limited to: changes in the
overall economy relating to, among other things, the September 11 attacks and
subsequent events, substantial capital requirements; development of effective
internal processes and systems; the ability to attract and retain high quality
employees; technology; the number and size of competitors in its markets; law
and regulatory policy; and the mix of products and services offered in the
company's target markets. Additional information concerning these and other
important factors can be found within Level 3's filings with the Securities and
Exchange Commission. Statements in this release should be evaluated in light of
these important factors.
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