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Rating Action:

Corrections to Text, May 24, 2010 Release: Moody's downgrades Cincinnati Bell's CFR to B1 on pending acquisition of CyrusOne

24 May 2010

New Bank Debt Rated Ba3

New York, May 24, 2010 -- Substitute "B2" for "B1" in the fifth paragraph Downgrades, fifth line "Senior Unsecured Regular Bond/Debenture, Downgraded to B2, LGD4, 61% from Ba3, LGD4, 53%" , Revised release follows.

Moody's Investors Service has downgraded the corporate family rating ("CFR") and probability of default rating ("PDR") of Cincinnati Bell Inc. ("CBB"), each to B1 from Ba3, reflecting the higher leverage and significantly reduced free cash flow generation as expected due to its pending acquisition of CyrusOne for $525 million in cash. While Moody's believes that CBB's increasing investments in its technology segment are strategically sound, concerns remain about the high purchase price multiples that data center assets are garnering and future pricing pressure that is likely to ensue as more hosting capacity comes on the market.

Moody's also assigned a Ba3 rating to new senior secured credit facilities that will be used to complete the acquisition and refinance existing debt. Moody's notes that CBB intends to raise additional senior unsecured debt in the near future, with the proceeds of any such financing likely to commensurately reduce senior secured debt outstandings. If the company is successful in raising unsecured debt at CBB, then ratings for the senior secured credit facilities could rise. As part of the rating action, Moody's downgraded the company's senior unsecured notes to B2 from Ba3, and its senior subordinated notes and preferred stock, each to B3 from B2, reflecting these securities' junior positions in the capital structure. In addition, Moody's downgraded the ratings of the senior unsecured notes at CBB's Cincinnati Bell Telephone subsidiary, to Ba2 from Ba1.

Upon closing of the transactions, ratings for the existing senior secured credit facilities will be withdrawn. The rating actions conclude the review for possible downgrade initiated by Moody's on May 13, 2010, following the CyrusOne acquisition announcement.

Moody's has taken the following rating actions:

Downgrades:

..Issuer: Cincinnati Bell Inc.

....Probability of Default Rating, Downgraded to B1 from Ba3

....Corporate Family Rating, Downgraded to B1 from Ba3

....Senior Secured Regular Bond/Debenture, Downgraded to Ba3 LGD3, 34% from Ba2 LGD3, 36%

....Senior Unsecured Regular Bond/Debenture, Downgraded to B2, LGD4, 61% from Ba3, LGD4, 53%

....Senior Subordinated Regular Bond/Debenture, Downgraded to B3, LGD6, 91% from B2, LGD5, 89%

....Preferred Stock, Downgraded to B3 LGD6, 97% from B2 LGD6, 98%

..Issuer: Cincinnati Bell Telephone Company

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2, LGD2, 23% from Ba1, LGD2, 16%

Assignments:

..Issuer: Cincinnati Bell Inc.

....Senior Secured Bank Credit Facility, Assigned Ba3 LGD3, 34%

Outlook Actions:

..Issuer: Cincinnati Bell Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Cincinnati Bell Telephone Company

....Outlook, Changed To Stable From Rating Under Review

Confirmations:

..Issuer: Cincinnati Bell Inc.

....Existing Senior Secured Bank Credit Facility, Confirmed at Ba2, LGD3, 36% to be withdrawn

Withdrawals:

..Issuer: Cincinnati Bell Inc.

....Senior Subordinated Regular Bond/Debenture, Withdrawn, previously rated B2, LGD5, 89%

The B1 CFR reflects CBB's relatively high leverage for a telecommunications company and poor expected free cash flow generation as the company intends to expand the staged build-out of its data center business. The company has been devoting a greater share of its capital budget over the past three years to grow the data center business, and the acquisition of CyrusOne marks its first significant expansion outside the core Ohio, Kentucky and Indiana service territories since the company retrenched its operations around its historic base over the last decade. Moody's is also concerned that if the company expands its data center footprint internationally, this will increase operating and execution risks. At the same time, Moody's anticipates that downward pressure on the company's revenue will persist due to continuing access line losses in CBB's incumbent wireline territories and intense competition in wireless segment. As such, even though Moody's does not expect the company to resume its share repurchases, nearly all free cash flow generation will be consumed by increased capital expenditures in its wireless and technology solutions segments, in addition to pension contributions over the next two to three years. The ratings benefit from CBB's solid market position as an incumbent residential telecommunications provider and the revenue diversification it derives from its wireless network and business customer base.

The stable outlook is based on Moody's expectations CBB will be able to maintain stable EBITDA levels by offsetting access line losses by increasing efficiencies in its incumbent wireline operations and by growing data and broadband revenues in its wireless segment.

CBB's SGL-3 short term liquidity rating reflects Moody's view that the company will have adequate liquidity, as the company's forward capital spending and pension plan contributions will materially reduce free cash flow generation. Moody's expects the company to generate modest free cash flow for 2010, but also expects the company to consume net cash in 2011 data center expansion continues. The company's liquidity is bolstered by the amended $210 million revolving credit facility, which will also give the company greater operating flexibility with increased covenant headroom over the next two years.

The principal methodology used in rating Cincinnati Bell was Moody's Global Telecommunications Industry Methodology, published in December 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. Additional research and commentary is available to subscribers at www.Moodys.com

Moody's most recent rating action for CBB was on May 13, 2010 when Moody's placed the ratings of CBB and its subsidiaries on review for possible downgrade.

Cincinnati Bell Inc., with headquarters in Cincinnati, Ohio, provides telecommunications products and services to residential and business customers in Ohio, Kentucky and Indiana. CBB generated $1.3 Billion in revenues in 2009.

New York
Alexandra S. Parker
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Gerald Granovsky
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Corrections to Text, May 24, 2010 Release: Moody's downgrades Cincinnati Bell's CFR to B1 on pending acquisition of CyrusOne
No Related Data.
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