Moody's rates Rural Cellular notes Caa2, cuts view to negative

Moody's Investors Service said it assigned a Caa2 rating to the proposed offering of $175 million senior subordinated notes due 2012 by Rural Cellular Corp.

Moody's said it also affirmed the company's other ratings, including the B3 corporate family rating, the $60 million first-lien revolving credit maturing 2010 at B1, the $160 million senior secured second-lien floating-rate notes due 2010 at B2, the $350 million 8¼% senior secured second-lien notes due 2012 at B2, the $325 million 9 7/8% senior notes due 2010 at Caa1, the $300 million 9¾% senior subordinated notes due 2010 at Caa2, the 11 3/8% senior exchangeable preferred stock due 2010 at Ca and the 12¼% junior exchangeable preferred stock due 2011 at C.

The outlook has been changed to negative from stable.

The ratings reflect the very modest free cash flow generating capacity of the company, which is currently negative due to higher-than-normal capital spending, the agency said. The ratings also reflect Rural Cellular's very high leverage, with total debt representing 6.5 times the last 12-month EBITDA.

The negative outlook reflects Rural Cellular Corp's difficulty in retaining its subscriber base and growing its cash flows. At the end of second quarter of 2005, Rural Cellular's subscriber base was down 30,305, or 4.6%, from the second quarter of 2004, the agency said.

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