Iffy Qwest Books Buoyed Stock, Cinching Its US West Takeover Capacity swaps showed up as sales, giving a lift to profit at crucial time.(A)

Byline: JED GRAHAM

The press release Qwest Communications issued on March 31, 1999, couldn't have sounded much more buoyant.

To keep up with growing demand, Star Telecommunications had agreed to buy $85 million worth of broadband capacity on Qwest's network, expanding by $15 million the $70 million deal it had signed six months earlier.

And Qwest, happy with "the success . . . of its relationship with Star," said it would buy international long-distance services from the Santa Barbara, Calif.-based firm.

Left unsaid, but later reported in Star's filings with the Securities and Exchange Commission, was that as part of the bigger deal, Qwest agreed to convert to vendor financing "a substantial portion" of Star's liability. The long-distance service that now-bankrupt Star provided would offset its debt to Qwest. A good thing, since Star had just $27 million in cash.

That deal and others show Qwest was "in a sense buying revenue," said Davenport & Co. analyst Drake Johnstone.

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