Level 3 Communications Inc. (NASDAQ: LVLT) is one of the more active stocks for traders in the $1.00 and sub-$5.00 stock land.  This week the company filed an interesting automatic shelf registration statement with the SEC for it and certain units under the company to sell any combination of Debt, Preferred Stock, Depositary Shares, Warrants, Stock Purchase Contracts, Stock Purchase Units, Subscription Rights, and Common Stock.   How much it will be able to sell and who the underwriters are not known, but there is much more to consider here than just the filing.

The company says that it will use the proceeds for working capital,capital expenditures, refinancing existing indebtedness, acquisitionsand other general corporate purposes.  But the real issue is whether the company will be able to meet its debt maturityobligations and to pay off whatever debt it can. 

This stock was hit after its earnings in late October.  The companyended last quarter with $587 million in cash and equivalents.  Itcarries over $6.4 billion in direct long-term debt.  Its direct long-term debtobligations at the end of 2007 was over $6.8 billion.  Unless therehave been changes or unless there are some mandatory changes that camein its instruments, the company only has $362 million in direct debtdue from its long-term debt issues that is due in 2009.

Raising cash in this environment is not an easy task.  As this is anopen shelf,  Level 3 doesn’t have to sell securities immediately.  It may doso over time to refinance or convert other debt maturities.  If it canpay down its debt at terms that are not too harsh, then the dilutionwill be acceptable considering how leveraged the company is.  Its totalmarket cap is only $2.06 billion.

We cover many such issues in our open email distribution list alongwith IPO’s, merger developments, financings, Warren Buffett actions, special situations, and more.

Shares have actually doubled from its intra-day lows of October 23 and 24.

Jon C. Ogg
November 5, 2008

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