Level 3 Communications, Inc.
Susan V. White
University of Maryland - Department of Finance
affiliation not provided to SSRN
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.
Number of Pages in PDF File: 17
Keywords: financing, preferred stock, convertible debt
JEL Classification: G32
Date posted: October 22, 2008