S&P cuts Dobson, rates ACC B-

Standard & Poor's downgraded Dobson Communications Corp. including cutting its $300 million 10.875% senior notes due 2010 to CCC from CCC+ and Dobson Operating Co. LLC's $925 million senior secured bank loan due 2008 to B- from B and assigned a B- rating to ACC Escrow Corp.'s planned $900 million senior notes due 2011. The outlook is stable.

When the reorganization is completed, American Cellular Corp. will be assigned a B- corporate credit rating with a stable outlook, S&P said.

While unsecured debt at Dobson is rated two notches below the corporate credit rating due to the high degree of concentration of bank debt in the corporate structure, the unsecured ACC Escrow Corp. notes are rated the same as the corporate credit rating because of the minimal amount of priority obligations anticipated in American Cellular's proposed capital structure, S&P said. These notes are non-recourse to Dobson Communications Corp.

S&P added that it had been concerned about the change of control risk at Dobson Communications under the $320 million Dobson Communications Corp. LP loan with Bank of America. This could have required Dobson to offer to purchase its outstanding senior notes at 101% of the principal amount plus accrued and unpaid interest. A change of control also constitutes an event of default under Dobson's bank credit facility, entitling the lender to accelerate the maturity of that debt.

However, an agreement closed on May 19 between the parties eliminates the change of control risk at Dobson Communications related to possible future default on the DCCLP loan.

Yet despite the resolution of this overhang, Dobson's ratings have been lowered because of weakened fundamentals for the rural wireless industry, including continued declines in roaming yield and the potential for increased competition when number portability is implemented in November 2003, particularly from the national carriers, S&P said. Roaming revenue is about 30% of total revenue.

These factors are somewhat offset by the company's somewhat below-average churn rate of 2.2% and above-average EBITDA margin in the mid-40% area.

While the company's reliance on roaming exacerbates its already sizeable business risk, this risk is somewhat mitigated by receipt of recent long-term roaming agreements with AT&T Wireless Services Inc. and Cingular Wireless LLC to cover GSM traffic. These agreements limit the near term competitive threats of an extensive network overbuild by these carriers in the Dobson and American Cellular service areas, S&P said.

Moody's cuts Advanstar, rates notes B3

Moody's Investors Service downgraded Advanstar Communications, Inc. including cutting its $160 million senior subordinated notes to Caa2 from Caa1 and assigned a B3 rating to the company's proposed $400 million second priority senior secured notes due 2010. The outlook is stable.

Moody's said the downgrade is in response to diminished long-term growth prospects of revenue and cash flow in two important sectors (technology and travel & hospitality) coupled with the belief that the implied coverage provided to creditors by the underlying assets is modest and provides little incremental cushion above current debt levels.

The proceeds from the new notes will be used to repay the existing bank credit facilities. This serves to eliminate looming bank amortizations and pushes out the next debt maturity to 2007. However, the spread in pricing between the new notes and the repaid bank facilities will increase cash interest meaningfully, Moody's said.

Advanstar's operating performance has stabilized due to its aggressive cost management and recovery of certain segments of its business which has off-set areas of continuing weakness, particularly technology and travel and hospitality. However, Moody's said it is concerned that meaningful revenue and cash flow growth will be difficult to achieve without meaningful recoveries in these markets, which account for approximately 25% of revenue and 15% of cash flow combined.

Considering the concentration in telecom within the technology portfolio and the geopolitical concerns surrounding travel, the pace of growth is expected to be slow.

Further, issuers in the trade magazine and trade show businesses have been financially strained due to the decline in business-to-business advertising and marketing. This has resulted in a smaller universe of potential buyers of Advanstar's assets.

For the 12 months ended June 30, 2003, Advanstar's operating company leverage is high with debt-to-EBITDA of 6.7 times (6.4 times per the indenture) and, including the company's senior discount notes, leverage is about 8 times pro forma for the announced refinancing. Interest coverage after capital expenditures is thin at 1.3 times.

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