Despite the January chill of traditional deal flow, Legg Mason is warming the net lease world with a $185 million credit tenant lease transaction for Qwest Corporation, sources said.

Qwest Corporation is rated BBB+' with a negative outlook by S&P and A2' with a negative outlook by Moody's; the credit backs most of Qwest's balance sheet, cash flow and earnings.

The Moody's rating is two notches higher than that associated with the Qwest parent entity, publicly traded Qwest Communications International (QCI); as a matter of policy, S&P will not rate a subsidiary higher than its parent rating.

Lehman Brothers was recently in the market with its $72.629 million Tuckahoe Credit Lease Trust 2001-CTL1 for QCI. Credit analysts, certain rating agencies and institutional investors generally consider Qwest Corporation a stronger credit than its parent entity.

Price talk at launch for the Lehman transaction was reportedly in the area of 80 to 90 basis points over Qwest corporates, but the deal was then re-offered and re-traded at 50 over. Price talk on the Legg Mason transaction is 40 basis points over five-year Qwest corporates; based on current capital market conditions that would imply 270 basis points over the five-year Treasury.

The Qwest Corporation transaction is secured by four separate absolute net bond leases for four separate office buildings and carries a 64-month term. The structure of the deal blends CTL and synthetic lease financing techniques to ensure that the month-64 balloon payments are effectively backed by Qwest Corporation and, if necessary, residual value insurance amounting to 12% of the balloon payments provided by RVI Services America - rated A'/A2' by S&P/Moody's.

Qwest Corporation - formerly known as U.S. West - is the fourth-largest baby bell. Its acquisition by Qwest Communications International in 2000 secured the parent company's investment-grade rating and nearly doubled its size.

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