DBRS Places Ratings of ALLTEL Corporation Under Review - Developing

DBRS has today placed the “A” long-term ratings and R-1 (low) short-term ratings of ALLTEL Corporation (ALLTEL or the Company) Under Review with Developing Implications.

This rating action reflects recent comments by ALLTEL relating to the ongoing strategic review of the Company. Management has indicated that potential alternatives being currently considered by ALLTEL’s board include balance sheet restructuring, operational opportunities and strategic alternatives. Because certain options being considered by the Company could be viewed as positive for debtholders (sale to a larger wireless entity, and the potential acquisition of further wireless properties using its strong financial position), in addition to being potentially negative, DBRS feels that the Developing Implications status is warranted at this time. ALLTEL’s management has indicated that the results of the strategic review will likely be publicly disclosed in the May/June 2007 timeframe, at which time DBRS expects to resolve the Under Review status.

Notwithstanding, ALLTEL’s ratings in the “A” category were supported by a strong balance sheet and improving cash flow from operations that reflected strong wireless subscriber growth, increasing average revenue per user (ARPU) and declining customer churn rates. DBRS acknowledges that while ALLTEL faced limitations that included increasing customer acquisition costs along with integration challenges that both limited near-term EBITDA margin improvement, the Company’s rating was notched one higher than the business risk rating of A (low) for the U.S. wireless industry due to its management, strong free cash flow and above-average credit metrics.

Although DBRS expected ALLTEL would increase its balance sheet leverage as a result of its current $3 billion share repurchase program, which was 50% completed as of the end of 2006, it would now appear that that the possibility of the Company increasing its leverage further could occur. As such, leverage could potentially increase to above 1.5 times gross debt-to-EBITDA while cash flow-to-gross debt could decline to below 0.40 times which may no longer support ALLTEL’s rating being maintained at “A”.

Notes:
All figures are in U.S. dollars unless otherwise noted.
These ratings are based on public information.