How has debt-laden Level 3 survived (at least so far) two crashes now? Dennis Berman tells the story.
Since 2001, it has been paying $500 million to $600 million a year in interest. Yet it has never been able to cut its long-term debt load below $5 billion. Even worse, Level 3 hasn’t made a penny of profit since 1999. Its stock has traded below $8 for the past eight years. It closed at 98 cents on Monday.
Level 3 seemed a prime target to get pulled into today’s great credit maw, where decent but otherwise cash-strapped companies go to die. By November, bond investors were seriously doubting the company’s ability to pay off $1.1 billion in debt coming due this year and next, valuing its bonds as low as 30 cents on the dollar.
But the company has convinced large equity holders to bail them out of the crushing debt load, at least for the next year. 2010 and beyond will still be rough. Berman’s article did not mention the angel who saved Level 3 during the tech/telecom crash of 2000-02: Warren Buffett.
