DBRS Upgrades ALLTEL Corporation/Communications Debt Securities to A (low)

DBRS has today upgraded its Senior Unsecured Notes and Debentures rating of ALLTEL Corporation (ALLTEL or the Company) to A (low) from B. Additionally, DBRS has upgraded all of the ratings of ALLTEL’s wholly-owned subsidiary, ALLTEL Communications Inc. (ACI), to A (low) and removed them from Under Review with Positive Implications, where they were originally placed on June 5, 2008. Additionally, the recovery ratings of this debt have now been withdrawn as the instrument ratings are now above the investment grade level. The trend is Stable.

The rating action is contingent on the closure of Cellco Partnership’s (dba Verizon Wireless) acquisition of ALLTEL as planned on January 9, 2009. This action concludes DBRS’s review which began on June 5, 2008 after Verizon Wireless announced it has signed a cash merger agreement to acquire ALLTEL’s equity for $5.9 billion and assume ALLTEL’s net debt of roughly $22.2 billion (total enterprise value of roughly $28.1 billion).

The ratings of ALLTEL at A (low) reflect: (a) the assumption of this debt by Verizon Wireless – rated “A” by DBRS – and DBRS’s belief that Verizon Wireless is committed to ALLTEL’s operations; (b) ALLTEL’s strong position in the regional wireless market with solid operating metrics, including churn of roughly 2% in the latest quarter and good EBITDA margins in the mid-30% range; (c) ALLTEL’s strong balance sheet with external debt-to-EBITDA of below 1.0 times; and (d) significant operating synergies between ALLTEL and Verizon Wireless, which, once merged, will become the largest wireless carrier in the United States with nearly 85 million subscribers (proforma at September 30, 2008).

While DBRS notes that the debt of ALLTEL is not formally guaranteed or co-obliged by Verizon Wireless, Verizon Wireless ownership enhances ALLTEL’s scale and formalizes a long-standing roaming relationship between the two companies. Additionally, DBRS believes that Verizon Wireless would provide funding support should ALLTEL require support in the future.

DBRS expects to discontinue certain ACI ratings on January 9, 2009 following the repayment of this debt as part of Verizon Wireless’s acquisition. This will leave roughly $2.5 billion of legacy debt that will be held externally ($2.3 billion of ALLTEL Corporation notes and $190 million ACI PIK Notes) along with $5.0 billion of ACI Senior Unsecured Bridge facility that Verizon Wireless will continue to hold as the purchase took place shortly after the transaction was announced.

DBRS could raise its ratings on this remaining ALLTEL/ACI debt in the future to be the same as Verizon Wireless should: (a) Verizon Wireless guarantee or become a co-obligor on this debt; (b) Verizon Wireless subordinate certain inter-company debt loaned to ALLTEL as part of the acquisition; and/or (c) its inter-company loan be reduced significantly over time.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Wireless which can be found on our website under Methodologies.

This is a Corporate rating.