Pending Acquisition of Global Crossing

6 Months Ended

Jun. 30, 2011

Pending Acquisition of Global Crossing

Pending Acquisition of Global Crossing

(2) Pending Acquisition of Global Crossing

On April 10, 2011, the Company and a subsidiary of Level 3 entered into an Agreement and Plan of Amalgamation (the “Amalgamation Agreement”) with Global Crossing Limited (“Global Crossing”) pursuant to which the Company expects to acquire Global Crossing in a tax-free, stock-for-stock (the “Amalgamation”) transaction valued at approximately $3 billion, based on Level 3’s closing stock price on April 8, 2011, including the assumption of approximately $1.1 billion of net debt. See Note 14 — Subsequent Events for additional information.

In connection with this transaction, Level 3 has also signed a voting agreement and stockholder rights agreement with a subsidiary of Singapore Technologies Telemedia (“ST Telemedia”), the company that owns approximately 60 percent of Global Crossing’s voting stock, whereby ST Telemedia has agreed to vote in favor of the transaction and allow ST Telemedia to designate members to the Level 3 Board of Directors approximately proportionate to their stock ownership.

Level 3 also announced the adoption of a Stockholder Rights Plan to protect its U.S. federal net operating losses from certain Internal Revenue Code Section 382 restrictions.  This plan is designed to deter trading that would result in a change of control (as defined in that Code Section), and therefore protect the Company’s ability to use its federal net operating losses in the future.

The acquisition of Global Crossing Limited is subject to regulatory approvals and customary closing conditions.  The Company is responding to regulatory requests for additional information and continues to expect that the transaction will close before the end of 2011.

In addition, concurrently with the execution of the Amalgamation Agreement, Level 3 Financing, Inc. and the Company entered into a financing commitment letter (the “Commitment Letter”) that provides for a senior secured term loan facility in an aggregate amount of $650 million. In July 2011, the Company announced the marketing of a $650 million senior secured term loan, the proceeds of which will be used to reduce the senior secured portion of the bridge commitment to zero and will be used to complete the financings necessary to effect the Global Crossing transaction.  The Commitment Letter also provides for a $1.1 billion senior unsecured bridge facility, if up to $1.1 billion of senior notes or certain other securities are not issued by Level 3 Financing, Inc., the Company or another of its subsidiaries to finance the Amalgamation on or prior to closing of the acquisition. The Company, through an indirect wholly owned subsidiary, Level 3 Escrow, Inc., issued $600 million in aggregate principal amount of that subsidiary’s 8.125% Senior Notes due 2019 in June 2011(see Note 8 — Long-Term Debt), and subsequently sold in July 2011 an additional $600 million aggregate principal amount of that subsidiary’s 8.125% Senior Notes due 2019 (see Note 14 — Subsequent Events), which in aggregate, reduce the financing commitment provided by the senior unsecured bridge facility to zero. The Company expects the financings, together with cash balances, to be sufficient to provide the financing necessary to consummate the Amalgamation and to refinance certain existing indebtedness of Global Crossing.