Moody's upgrades Eschelon

Moody's Investors Service said it upgraded Eschelon Operating Co.'s corporate family rating to B2 from B3, probability-of-default rating to B1 from B2 and its 8 3/8% second-lien notes due 2010 to B2 (LGD4, 64%) from B3 and affirmed the speculative grade liquidity rating at SGL-3.

The outlook was changed to stable from positive.

The agency said the upgrade reflects Eschelon's improving credit profile as a result of stronger operating fundamentals, the company's moderate leverage and its steady progress towards generating modest free cash flow in 2007.

The ratings are constrained by the uncertainties arising from Eschelon's acquisition strategy and its continuing high capital expenditures, Moody's said, as Eschelon has expressed the intention to acquire another $50 million of revenue in the coming two to three years. This follows the acquisition of ATI and three acquisitions completed in 2006.

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