Level 3 Communications Inc's ambitions to lead the consolidation among global carriers were dealt a blow yesterday when ratings agency Standard & Poor's cut its credit rating and poured scorn on its acquisitive ambitions.

With a debt burden that led to interest payments of $646m in its last financial year, the agency fears that Level 3 could strain its financial resources by taking over other loss-making carriers. S&P analyst Michael Tsao said that given Level 3's substantial leverage, weak interest coverage and limited liquidity, "the company is not well positioned to deal with such weak industry fundamentals."

Level 3 shares had surged ahead since news in July that it had raised $500m in bonds from a group of corporate investors including Berkshire Hathaway, which is chaired by Warren Buffet. This gave the Broomfield, Colorado-based company a $1.5bn war chest. More importantly, the fact that investment sage Buffet, who has been deeply skeptical about IT stocks, is backing the company gave it the credibility it has lacked.

News that S&P had cut its rating a notch to triple C- from triple C+ led the share price fall 9% to $5.46. Currently Level 3 is eyeing Williams Communications Group Inc, the troubled telecoms carrier that has been in Chapter 11 since April.

© ComputerWire

Related stories

Level 3 bids for Chapter 11 rival
Buffet and friends sub Level 3 $500m for acquisitions
Level 3 buys Software Spectrum