MOODY'S ASSIGNS Ba2 TO SENIOR SECURED CREDIT FACILITY OF WESTERN WIRELESS CORPORATION. UPGRADES SUBORDINATED NOTES TO B1
Moody's Investors Service assigned a Ba2 debt rating to Western Wireless Corporation for its $2.1 billion in Senior Secured Credit Facilities, pending review of the final documentation for these facilities. Moody's also upgraded the rating on the company's two series of 10.5% Subordinated Notes to B1 from B3, and the issuer rating to Ba3 from B2. The senior implied rating has been upgraded to Ba2. The outlook for all these ratings is stable.
The ratings reflect the company's strong financial profile, the less competitive environment of Western's rural cellular properties that provides for cash flow stability, and the well respected management team. The ratings upgrade recognizes the very strong operating performance of the company. The ratings also incorporate the positive and negative effects of the large amount of financial flexibility Western Wireless will possess at closing of this new credit facility with regards to domestic and international expansion. The Ba2 rating on the bank debt reflects its preponderance in the company's debt capital and Moody's opinion that the security and guarantees available to the bank lenders provide more than adequate collateral coverage. The rating on the subordinated notes reflects their subordination to outstandings under the secured credit facility.
Western Wireless is primarily a provider of cellular telephone service in rural areas of 19 western states in the US. The company's licensed service area encompasses roughly 25% of the continental US, but a much lower percentage of its population, or 9 million POPs. This low population density, approximately 11 people per square mile, makes the Western Wireless territories unattractive targets for overbuilding by PCS competitors. Instead, PCS operators are more likely to choose to roam onto cellular networks such as that of Western Wireless. Notwithstanding the rural nature of its markets, the company grew its subscriber base by 23% (excluding acquisitions) while revenues have grown by 37% in 1999. This strong growth has been quite well managed as EBITDA increased 55% in 1999, and leverage has dropped from approximately 9 times in 1997 to 5 times at the end of 1999.
Although Western Wireless has substantially improved its financial profile over the past few years, the company has not reduced absolute debt levels. Instead, the company has acquired additional rural territories to enhance its footprint while also making other strategic investments. One investment, VoiceStream Wireless (B1 senior implied) an urban PCS operator, has been spun-off into a separate company. Another is Western Wireless International (WWI), an unrestricted subsidiary to the bank credit and the bonds. WWI invests in operating joint ventures in countries where populations are relatively underserved by other telecommunications providers, and where the costs of obtaining a wireless license are low.
The new $2.1 billion credit facility will provide Western Wireless with considerable financial flexibility to continue to pursue domestic and international opportunities. This potential risk is mitigated, in Moody's opinion, by the discipline management has shown to date in making intelligent acquisitions domestically and rather modest investments overseas. For example, in 1999 Western Wireless acquired properties covering 1.55 million POPs to expand its population base by some 20%, but paid roughly $300 million in total, or only $200 per POP. This compares quite favorably to other recent rural cellular transactions. We expect the company will continue to make deals that will enhance its footprint both through outright acquisition and through swaps with other wireless operators. Internationally, Western Wireless has invested over $65 million over the past three years in various unconsolidated joint ventures. While the dollars invested are likely to increase going forward, Moody's expects that they will remain modest relative to the company's cash flows, and that those operating joint ventures will be able to attract their own capital from vendors and others.
Based in Bellevue, Washington, Western Wireless provides wireless communications services in 19 western states serving over 834,000 subscribers at the end of 1999.
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