Level 3 Communications, Inc.

17 Pages Posted: 22 Oct 2008  

Susan V. White

University of Maryland - Department of Finance

Timothy Bruning

affiliation not provided to SSRN

Date Written: September, 30 2008


This case illustrates the financing decision of Level 3, a fast-growing telecom company, in the summer of 2002. There had been severe downsizing in the telecom industry and Level 3 wanted to take advantage of this opportunity by acquiring financially-distressed competitors that would complement and expand its business. To do so, it needed a source of financing. Issuing debt was a problem because the company's bonds were junk-rated. Issuing equity was a problem because the firm's stock price was considerably below its peak price. As a result, the company was considering a convertible bond issuance, which would preserve shareholder ownership to a greater extent than would an equity issue. It also offered a lower interest rate than straight debt. The convertible bond alternative needed to be priced and compared to the options of issuing straight debt or equity.

Keywords: financing, preferred stock, convertible debt

JEL Classification: G32

Suggested Citation

White, Susan V. and Bruning, Timothy, Level 3 Communications, Inc. (September, 30 2008). Available at SSRN: https://ssrn.com/abstract=1275907 or http://dx.doi.org/10.2139/ssrn.1275907

Susan V. White (Contact Author)

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

Timothy Bruning

affiliation not provided to SSRN

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