Moody's lifts Dobson note, downgrades American Cellular loans

Moody's Investors Service said it upgraded Dobson Cellular Systems, Inc.'s $325 million second-priority secured notes to B1 (LGD3, 40%) from B2 (LGD 4, 54%) and downgraded American Cellular Corp.'s senior secured bank facility to B1 (LGD3, 39%) from Ba2 (LGD 2, 20%). The facility includes a $75 million revolving facility due 2012, a term facility due 2014 that was increased to $900 million from $700 million and a $75 million delayed-draw term facility due 2014.

American Cellular's 10% senior unsecured notes due 2011 were affirmed at B3 (LGD4), but the loss-given-default rate was changed to 63% from 58%.

All other ratings were affirmed, including Dobson Communications Corp.'s B2 corporate family and probability-of-default ratings and SGL-1 speculative grade liquidity rating.

The outlook is stable.

The rating actions follow American Cellular's announcement that it would no longer issue $425 million of senior unsecured notes to partially fund the full redemption of its $900 million 10% senior unsecured notes issue, but would instead increase the size of its planned senior secured bank facility by $200 million, to $1.05 billion, and leave $225 million of the 10% senior unsecured notes outstanding.

The increase in American Cellular's initial senior secured leverage to roughly 4.75x has caused Moody's to apply a 50% deficiency claim to its senior secured debt in the loss-given-default waterfall, reflecting the significant disparity between the first-lien asset coverage of American Cellular and Dobson Cellular, which has leverage of about 2x.

The agency said the upgrade to Dobson Cellular's second-lien senior secured debt reflects the application of the deficiency claim to American Cellular's senior secured debt, which has reduced the amount of debt deemed to be prior ranking.

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