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Rating Action:

MOODY'S CONFIRMS LONG- AND SHORT-TERM DEBT RATINGS OF ALLTEL AT A2 AND PRIME-1, RESPECTIVELY; ASSIGNS (P)A2 RATING TO PLANNED $1.25B OFFERING OF EQUITY UNITS; (P)A2 RATING ALSO ASSIGNED TO SENIOR DEBT SECURITIES TO BE ISSUED UNDER $5.0B UNIVERSAL SHELF RE

26 Apr 2002
MOODY'S CONFIRMS LONG- AND SHORT-TERM DEBT RATINGS OF ALLTEL AT A2 AND PRIME-1, RESPECTIVELY; ASSIGNS (P)A2 RATING TO PLANNED $1.25B OFFERING OF EQUITY UNITS; (P)A2 RATING ALSO ASSIGNED TO SENIOR DEBT SECURITIES TO BE ISSUED UNDER $5.0B UNIVERSAL SHELF RE

Approximately $3.9 Billion of Existing Debt Securities Affected.

New York, April 26, 2002 -- Moody's Investors Service has confirmed the short and long-term debt ratings of ALLTEL Corporation at Prime-1 and A2, respectively. In addition, we have assigned a (P)A2 rating to the senior unsecured debt securities to be issued under ALLTEL's $5.0B universal shelf registration, including the proposed $1.25B offering of equity units. The equity units are comprised of two parts, an equity purchase contract and a senior note. The equity purchase contract requires the holders to buy ALLTEL stock at year three. The senior notes are an interest bearing senior unsecured obligation of ALLTEL with a maturity of five years. Since the equity units rank pari passu with ALLTEL's other senior unsecured obligations, Moody's rates the instrument A2. The ratings outlook is stable.

These rating actions are based on our expectation that: 1) ALLTEL's acquisitions of access lines from Verizon Communications and the wireless operations of CenturyTel, for a total of about $3.6 billion, will be financed in part with equity, including successful completion of the issuance of equity units it announced yesterday; 2) that ALLTEL will continue to exercise discipline in growing its businesses through acquisitions and that any future transactions will be financed in a manner that preserves balance sheet strength; 3) that wireless operations will generate steadily increasing cash flows despite an increasingly competitive marketplace, margin pressure, and slowing subscriber growth; and, 4) that ALLTEL's telephone operations will remain a significant and reliable source of strong cash flows despite the challenges associated with a weak economy and the beginnings of some modest competitive challenges. Consequently, while the financing plan for the acquisitions will weaken credit measures near-term, we anticipate that the company will generate strong free cash flow and quickly re-strengthen its balance sheet. In 2001, the company was able to reduce net debt by almost $800 million despite increasing its capital spending by over $100 million.

In addition to the equity units, Moody's expects that the balance of the purchase price will be financed with debt of varying maturities, including a modest amount of commercial paper. While we anticipate that the current $1.0 billion bank facility will be more than adequate to provide 100% back-up for all outstanding commercial paper, the company is expected to increase its back-stop facilities by about $500M to strengthen alternate liquidity. ALLTEL has received $2.75B of committed interim financing from Merrill Lynch and Bank of America, in addition to its plan to expand its existing credit facilities.

In acknowledgment of the increasing risk profile of the core businesses and its desire to grow the company through acquisition, ALLTEL's management has long demonstrated a commitment to sustain strong financial flexibility -- a commitment that Moody's expects will be continued. ALLTEL's debt balances have remained relatively stable despite a long series of acquisitions due to the company's use of its common stock for several of these transactions and as free cash flow and proceeds from asset sales have generally been used to maintain balance sheet strength. In addition, the company has demonstrated discipline in the prices it is willing to pay for wireless and wireline assets. Moody's notes that the information services business, which in 2001generated about $1.4 billion in revenue and over $350 million in operating cash flow, has been restructured in a manner that makes a potential sale of this unit easier.

We believe that the purchase of the wireless operations of CenturyTel (over 700,000 customers covering 8.3M consolidated POPs plus minority interests) and the 600,000 access lines (in Kentucky) from Verizon will have positive strategic and operational benefits for ALLTEL. Both transactions are expected to close during the second half of this year.

Moody's anticipates that the operating performance of ALLTEL's wireless business will remain strong in an increasingly difficult market. Subscriber growth rates are slowing as penetration rates increase and new product offerings are relatively slow to gain acceptance. Competition, especially from the much larger national providers, is increasing rapidly.

CenturyTel's wireless operations are completely complementary to ALLTEL's wireless properties and increase the business' scale and scope. The opportunity to increase the profitability of these properties through cost reductions, the introduction of regional and national calling plans and other synergies is substantial. ALLTEL's competitive position is also enhanced by a favorable national roaming agreement with Verizon, the country's largest wireless provider. However, these opportunities for profit enhancement will be offset by slowing subscriber demand growth (which may not necessarily translate into lower capex since operators need to compete more aggressively for new customers) and increasing competition that is putting pressure on operating profit margins. Nevertheless, Moody's expects that earnings and cash flows will grow steadily over the next few years. In 2001, wireless operations generated almost $1.4 billion in operational cash flow while investing about $720 million in the network.

On the wireline side, line growth, new product introductions, relatively modest competitive threats, generally favorable regulation and an improved cost structure are expected to sustain the robust cash flow contribution from telephone operations. In 2001, wireline operating cash flow exceeded $1.1 billion on a 60% EBITDA margin, which was among the highest in the industry. Capital spending totaled about $325 million.

Over the next few years this strong operating performance is expected to continue because of demand growth for both traditional and enhanced service offerings (primarily as a result of population growth in the company's service territory) and improved productivity as a result of investment in the network and operating support systems, and the consolidation of processes and operations. Capital spending is expected to remain flat in absolute terms. Because ALLTEL's telephone operations are spread over 15 states they benefit from a degree of economic and regulatory diversity.

Moody's notes that ALLTEL is a minority partner in a number of wireless ventures and a majority partner in a number of others. Over time, Moody's expects that ALLTEL may buy out some of its minority partners, a call on its capital. However, this capital need may be at least partially offset by selling out or trading out of its minority stakes.

Moody's notes that American Tower (B2- senior implied rating) owns the leasing rights to a significant number of wireless towers on which ALLTEL has located its transmission equipment. Should American Tower face financial difficulties it will be important for ALLTEL to maintain its ability to use its equipment on an uninterrupted basis.

ALLTEL Corporation, headquartered in Little Rock, Arkansas, provides wireless, wireline, long distance and Internet services to 10 million customers in 24 states, and information services to financial and communications companies in 50 countries.

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

New York
Robert Konefal
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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