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Rating Action:

MOODY'S ASSIGNS Caa2 RATING TO NEW SENIOR UNSECURED NOTES OF WESTERN WIRELESS. BANK DEBT RATING CONFIRMED. OUTLOOK CHANGED TO POSITIVE.

10 Jul 2003
MOODY'S ASSIGNS Caa2 RATING TO NEW SENIOR UNSECURED NOTES OF WESTERN WIRELESS. BANK DEBT RATING CONFIRMED. OUTLOOK CHANGED TO POSITIVE.

Approximately $2.15 Billion of Debt and Credit Facilities Affected.

New York, July 10, 2003 -- Moody's Investors Service today assigned a Caa2 rating to the pending issue of Senior Notes due 2010 and Senior Notes due 2013 to be issued by Western Wireless Corporation with aggregate anticipated gross proceeds of $600 million. Moody's also confirmed the company's senior implied rating of B3, and the B3 rating on the company's senior secured credit facility. The outlook for these ratings has been revised to positive from stable.

The affected ratings are:

Senior Implied - B3 (confirmed)

Senior Unsecured Issuer Rating - Caa2 (lowered to reflect structural subordination of prospective future senior unsecured issuances)

$1.55 billion senior secured credit facility - B3 (confirmed)

Senior Notes due 2010 - Caa2 (assigned)

Senior Notes due 2013 - Caa2 (assigned)

10.5% Senior Subordinated Notes due 2006 - WR (rating withdrawn)

10.5% Senior Subordinated Notes due 2007 - WR (rating withdrawn)

The ratings reflect the high leverage of the company, and Moody's concerns about the company's ability to generate substantially increasing amounts of cash flow in order to service these obligations as the wireless marketplace slows, and competition increases. The positive rating outlook reflects the improved financial flexibility the company will achieve upon conclusion of the pending refinancing as bank debt amortization is prepaid until 2H05 and covenant relief is obtained.

The B3 rating on the $1.55 billion senior secured credit facility of Western Wireless Corp. reflects Moody's opinion that these obligations consume the vast majority of the value of the company, as even pro forma for the required pay-down from the proceeds of the new notes secured debt will total around 65% of total debt. Nonetheless, in Moody's opinion the senior secured lenders' claims should be fully satisfied in a distressed scenario. The credit agreement is secured by all assets of the domestic operating subsidiaries and is guaranteed by those subsidiaries. The assets include over $1.2 billion in gross PP&E and 25 MHz of cellular spectrum covering over 10 million people and serving approximately 1.2 million subscribers. The Caa2 rating on the new senior unsecured notes reflects their effective subordination to the senior secured bank debt and other current and prospective claims on the company's operating subsidiaries, as these senior notes will not benefit from any upstream guarantees.

The credit base supporting the rated obligations are the domestic operations of Western Wireless. Financial performance of the domestic operations has improved over the course of 2002 and into 1Q03 after a disappointing 2001. Subscriber growth has resumed, and the company has been generating free cash flow (defined as cash provided by operating activities less capital expenditures), although some of this free cash flow has been used to invest in the company's unrestricted international operations. The receipt of USF funding has also incrementally improved the credit profile of the company.

The company's liquidity and financial flexibility will be improved upon consummation of the pending financing transactions, which include amending the bank credit agreement, issuing $600 million of new senior unsecured notes, and redeeming the existing $383 million of subordinated notes. With the proceeds from the new senior unsecured notes, the recently issued $115 million of 4.625% Convertible Subordinated Notes due 2023 (unrated), and some asset sales, Western Wireless will pay down $400 million of bank debt, effectively prepaying upcoming quarterly amortization until 3Q05. The company will also reduce its revolving credit commitment by $150 million to $350 million (with $200 million drawn against this line on a pro forma basis). Further, as part of the amendment to the credit agreement, the company will gain necessary financial covenant relief.

Nonetheless, while near term pressure is being relieved, Moody's remains concerned that Western Wireless must meaningfully grow cash provided by operations to continue to adequately service its debt obligations, especially in 2006 when bank debt amortization increases substantially. In 2006, assuming capital expenditures of $150 million (which is significantly below depreciation for the domestic operations of approximately $190 million in 2002) and interest expense of $125 million, Moody's estimates bank principal amortization requirements of over $300 million (depending upon revolving credit pay-downs in the interim). This will require the company to generate over $600 million in cash from EBITDA and other sources, the attainment of which implies substantial growth as the company generated only around $370 million in EBITDA from domestic operations in 2002.

However, Moody's notes that EBITDA growth has resumed, improving cash flow generation, and the company has begun to harvest some of its international investments as well as some non-contiguous domestic properties. The positive rating outlook reflects Moody's opinion that should financial and operating performance continue to improve, the ratings could be upgraded in the next 12 to 18 months.

Based in Bellevue, Washington, Western Wireless Corporation is a provider of wireless services in primarily rural areas of 19 western states. The company also has investments in nine international wireless operations.

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

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

No Related Data.
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