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Rating Action:

MOODY'S AFFIRMS ALLTEL'S RATINGS (SR AT A2, P-1 SHORT-TERM); PLACES THE LONG TERM RATINGS OF WESTERN WIRELESS ON REVIEW FOR POSSIBLE UPGRADE FOLLOW MERGER ANNOUNCEMENT.

11 Jan 2005
MOODY'S AFFIRMS ALLTEL'S RATINGS (SR AT A2, P-1 SHORT-TERM); PLACES THE LONG TERM RATINGS OF WESTERN WIRELESS ON REVIEW FOR POSSIBLE UPGRADE FOLLOW MERGER ANNOUNCEMENT.

Approximately $8.3 billion in debt affected

New York, January 11, 2005 -- Moody's Investors Service has affirmed the long and short term ratings of ALLTEL Corporation (AT) and its subsidiaries. At the same time, we have also placed the ratings of Western Wireless Corporation (WWCA) on review for possible upgrade. On January 10, 2005, AT announced its intentions to acquire Western Wireless for approximately $4.0 billion in stock and cash, plus the assumption of about $2.0 billion in debt. The rating outlook for AT remains stable. A complete list of ratings follows.

The affirmation of ALLTEL's ratings is based upon Moody's expectation that: 1) AT will finance the $6 billion purchase price (including the assumed debt) with at least 50% equity; 2) substantial liquidity in the form of cash on hand, marketable securities and strong free cash flow generation, coupled with the conversion of $1.385 billion of equity units in May of 2005, will allow AT to repay the bulk of WWCA's debt shortly after closing; 3) that wireless operations will generate steadily increasing cash flows despite an increasingly competitive marketplace; and, 4) AT's wireline operations will remain a significant source of free cash flows despite the challenges posed by rapidly expanding competition. Consequently, while the financing plan for the acquisition will weaken AT's liquidity position in the near-term, Moody's anticipates that the company's overall credit metrics will remain close to current levels in 2005 before improving in 2006 and beyond.

As part of the rating review for Western Wireless, Moody's will monitor regulatory and shareholder approval surrounding this transaction. Moody's notes that until the shareholders approve the transaction, other bidders may enter the fray. If the deal closes, we anticipate raising the ratings of WWCA to A2.

ALLTEL's stable rating outlook is based on Moody's expectations that the stock repurchase program of AT will remain suspended through at least the middle of next year, that AT will continue to exercise discipline in growing its businesses through acquisitions and that any future transactions will be financed in a manner that preserves AT's capital structure and asset quality.

ALLTEL's ratings could fall if: 1) a bidding war emerges for Western Wireless and AT chooses to purchase the company at a much higher price; 2) it finances the current deal with a materially larger portion of debt; or, 3) the company is unable to generate sufficient free cash flow to restore its liquidity to pre-transaction levels within 12 to 18 months of transaction close. In addition, if AT pursues strategic options, including another wireless acquisition in the next twelve months, that drive pro-forma 2006 debt to greater than five times free cash flow, the ratings could fall. Moody's expects the transaction to close around the middle of 2005.

To balance increasing competitive risks associated with its core wireline business and its desire to grow through acquisition, AT's management has long demonstrated a commitment to sustaining strong financial flexibility. Moody's believes that AT will continue to follow this conservative financial strategy. In addition, the company has demonstrated a disciplined approach to selecting strategically accretive acquisitions.

Moody's believes the combination of AT's and Western Wireless' operations has significant potential for strategic and operational synergies. With the acquisition of Western Wireless' approximately 1.4 million subscribers, AT will significantly increase its footprint in rural markets and further solidify its position as the largest rural provider. AT should recognize benefits from not only reduced roaming costs, but also increased attractiveness as a roaming partner for the four national carriers.

Overall, Moody's anticipates that the operating performance of AT's wireless business will remain strong in a challenging market. While AT's relative exposure tier two and tier three rural/suburban markets will increase to 70% on a proforma basis from 64%, it will still derive 30% of its wireless revenue from tier one urban markets, where there can be as many as seven other competitors. Moody's is also concerned that the price compression, associated with roaming rates, will continue to erode AT's wholesale margins. Despite continued pressure on margins, Moody's expects AT's wireless earnings and cash flows will grow steadily over the next few years due to growth in its customers base, increased penetration of higher ARPU national plans and controlled capital investment.

On the wireline side, increasing competitive challenges and somewhat higher capital spending for network upgrades in AT's more competitive markets, are expected to pressure free cash flow generation from this segment over the next several years. However, the ruraland/or suburban nature of two-thirds of its access lines, generally favorable regulation, a low cost structure and growing sales of enhanced services, especially DSL, are expected to temper the decline in the free cash flow generated from this business segment. Consequently, Moody's believes that wireline operations will continue to throw off meaningful free cash flow and provide significant financial flexibility in the intermediate term.

The following ratings are affirmed:

ALLTEL Corp

Senior Unsecured rating at A2

Issuer rating at A2

Senior Unsecured Shelf rating at (P)A2

Commercial paper rating at P-1

ALLTEL Communications Holdings Company of the Midwest, Inc. (FKA Aliant Communications)

Senior Unsecured rating at A2

ALLTEL Georgia Communication Corp

Senior Unsecured rating at A3

360(degree) Communication Company

Senior Unsecured rating at A2

ALLTEL Ohio LP

Senior Unsecured rating at A2

The following Western Wireless ratings were placed on review for possible upgrade:

B2 Senior Implied

B2 Sr. Bank Credit Facility Rating

Caa1 Senior Unsecured Rating

Caa1 Issuer rating

Moody's also affirmed WWCA's speculative grade liquidity rating at SGL-3, as near term, WWCA's liquidity profile is unchanged.

ALLTEL, headquartered in Little Rock, Arkansas, provides wireless, wireline, long distance and data services to over 8.4 million wireless customers and 3 million wireline customers in 26 states. Western Wireless, headquartered in Bellevue, Washington, is a provider of wireless services to approximately 1.4 million customers in primarily rural areas in 19 western states. On a proforma basis, the merger company, in terms of subscribers, will be largest rural wireless provider and the fifth largest wireless provider in the US.

New York
Dennis Saputo
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

No Related Data.
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