Moody's raises Eagle-Picher outlook

Moody's Investors Service raised its outlook on Eagle-Picher Holdings, Inc. and Eagle-Picher Industries, Inc. to stable from negative and confirmed their existing ratings including Eagle-Picher's $220 million revolving credit facility maturing February 2004 and $12.7 million remaining term loan A facility maturing November 2003 at B2, Eagle-Picher's $220 million 9.375% guaranteed senior subordinated unsecured notes due 2008 at Caa1 and Eagle-Picher Holdings' $141.9 million 11¾% cumulative redeemable exchangeable preferred stock mandatorily redeemable in 2008 at Ca.

Moody's said the outlook change reflects the new management team's implementation of a series of restructuring actions during the past year.

Significant productivity cost savings are anticipated during 2003 and future cash restructuring costs should be much less material, Moody's said.

While Eagle-Picher's last-twelve-month credit protection measures have not materially improved since the point when the ratings were downgraded in April 2001 and the company remains vulnerable to weak economic conditions, margin improvement during the most recent quarters has already been evident, the rating agency added. The company is now better positioned going forward to generate value-added new business, enhance operating efficiencies, and increase capacity utilization.

Eagle-Picher has additionally concluded several legacy litigation issues and divested certain non-core assets. Eagle-Picher's operating cash flow improvement is therefore expected to offset the potential conversion from PIK to cash payment of the company's semiannual preferred stock dividends that may occur as early as September 2003.

S&P puts Rural Cellular on watch

Standard & Poor's put Rural Cellular Corp. on CreditWatch with negative implications including its $300 million 9.75% senior subordinated notes due 2010 and $125 million 9.625% senior subordinated notes due 2008 at CCC+, its $237.5 million senior secured 8.5 year term loan B, $237.5 million senior secured 9 year term loan C, $275 million senior secured 8 year reducing revolver and $450 million senior secured 8 year reducing amortizing term loan at B and $100 million senior exchangeable preferred stock mandatorily redeemable 2010, $140 million junior exchangeable preferreds and $25 million senior exchangeable preferreds at CCC.

S&P said the action is because of several challenges facing the company and the rural cellular industry. These challenges include increased competition from national wireless carriers, potential impact of wireless number portability, lower roaming yield, prospective competition from their roaming partners because of industry technology changes, increasing debt maturities, and continued difficult capital markets.

In 2002, total revenue growth declined to 4% from 24% in 2001, reflecting slower subscriber growth and a significant decline in roaming revenue growth, S&P said. Roaming revenue - about 27% of total revenue - has been affected by the decline in roaming yield, offsetting some increased roaming minutes of use. Overall roaming revenue is expected to be relatively flat in 2003.

In addition, as national carriers build out their Global System for Mobile Communications networks, the risk of revenue loss could increase over the intermediate term. Potential for incremental revenue from receiving Eligible Telecommunications Carrier status in five additional states is expected to be minimal in the near term.

In 2002, the EBITDA margin remained healthy at 48%, one of the best in the industry, reflecting good cost control, and more than 88% of the subscriber base was postpaid customers, S&P said. In addition, the churn rate continued to be below the industry average at 1.8%. However, costs per gross addition increased to $373 in 2002 from $287 in 2001, primarily because of lower gross customer additions and marketing promotions. Monthly average revenue per unit (ARPU) remained relatively flat, at $57, compared with 2001.

Although the company's free cash flow position has improved steadily, the payment of cash dividends on its senior exchangeable preferred stock commencing in August 2003 and on its junior exchangeable preferred commencing February 2005 likely will affect growth in free cash flow, S&P added.

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