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Rating Action:

Moody's affirms Windstream's ratings; Gabriel (Nuvox) on review for upgrade

03 Nov 2009

New York, November 03, 2009 -- Moody's affirmed Windstream Corporation's ("Windstream" or the "Company") Ba2 corporate family and probability of default ratings and placed the ratings of Gabriel Communications Finance Company (Gabriel), a wholly-owned subsidiary of NuVox, Inc. (NuVox), on review for possible upgrade. The rating action was prompted by Windstream's announced plans to acquire Nuvox for a total purchase price of $643 million consisting of about $280 million in cash, $183 million in Windstream stock and the assumption of $180 million (net of cash) of Nuvox's outstanding debt. Windstream expects to close the acquisition in the first half of 2010.

The transaction values NuVox at about 5.6 times its trailing EBITDA of $115 million, before synergies. The Company expects the transaction to be free cash flow accretive after achieving $30 million of synergies. Moody's believes the acquisition price validates the business model of a CLEC with good operations, low integration risk, and a moderately levered capital structure. While Moody's believes that the synergies from the merger are achievable, and there is low integration risk due to the relatively small size of the transaction, integrating the cultures of the two organizations could be more challenging given their very different legacy operations. Windstream is primarily a rural incumbent wireline operator serving residential and business customers, although it has small competitive local exchange carrier (CLEC) operations. On the other hand, Nuvox has focused exclusively on serving small- and medium-sized enterprises (SMEs) by leasing network elements from the incumbents, while competing against them.

Moody's believes the proposed acquisition of Nuvox by an incumbent local exchange carrier (ILEC) deviates from the pattern of acquisitions made by the ILECs in the past. Historically, the ILECs have sustained their cash flows by acquiring other ILECs and driving synergies from the acquisitions. Windstream's planned acquisition of Nuvox reflects its increasing focus on growing revenues from business customers. While revenue growth from residential customers has remained elusive for most incumbent wireline operators due to secular pressures, we expect the revenues from the SME customers to grow modestly when the economy rebounds. In addition, by acquiring market share in the SME segment Windstream will be better positioned against the cable operators, which are extending their footprints from residential to SME segment.

Moody's has taken the following rating actions:

..Issuer: Windstream Corporation

....Senior Secured Bank Credit Facility, Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3, LGD5 -- 75%

Outlook -- Stable

Speculative Grade Liquidity Rating -- SGL-1 (to be revisited when the Nuvox acquisition closes)

..Issuer: Valor Telecommunications Enterprise, LLC

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

Outlook -- Stable

..Issuer: Windstream Holdings of the Midwest, Inc

.Senior Notes, Affirmed Baa3

Outlook -- Stable

..Issuer: Windstream Georgia Communications Corp.:

.Senior Notes due 2013, Affirmed Baa2

Outlook -- Stable

Issuer: Gabriel Communications Finance Company

..On Review for Possible Upgrade:

.... Probability of Default Rating, Placed on Review for Possible Upgrade, currently B3

.... Corporate Family Rating, Placed on Review for Possible Upgrade, currently B2

....Senior Secured Bank Credit Facility, Placed on Review for Possible Upgrade, currently B2

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

Moody's affirmed Windstream's existing ratings as the proposed transaction is not expected to materially alter the Company's operating and credit profile.

Moody's put Nuvox's ratings under review for upgrade reflecting Windstream's stronger credit profile and a high likelihood of the closing of the acquisition. Moody's notes the change of control condition under Nuvox's credit agreement requires the repayment of Nuvox's outstanding bank debt, unless the agreement is amended. The review of Nuvox's ratings will focus on Windstream's plans regarding the existing Nuvox debt. Should the debt be unconditionally and irrevocably guaranteed or legally assumed, the ratings will likely be upgraded. If the debt is repaid, Moody's will withdraw Nuvox's ratings.

For further analysis regarding Windstream and NuVox, please refer to Moodys.com.

The principal methodology used in rating Windstream and NuVox was Moody's rating methodology for Global Telecommunications Industry 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.

Moody's most recent rating action for Windstream was on September 29, 2009. At that time, Moody's affirmed Windstream's ratings in connection with the Company's plans to issue new notes.

Moody's last rating action on Nuvox was on October 2, 2008, when Nuvox's ratings were affirmed.

Windstream, headquartered in Little Rock, AR, is an ILEC providing telecommunications services in 16 states and generated about $3.1 billion in annual revenues.

NuVox, headquartered in Greenville, SC, is a CLEC with approximately 90,000 small and medium-sized business customers across 16 states in the Southeast and Midwest. Its annual revenue is approximately $560 million.

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

New York
Kendra M. Smith
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Windstream's ratings; Gabriel (Nuvox) on review for upgrade
No Related Data.
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