Moody's ups Eschelon view to positive

Moody's Investors Service said it changed Eschelon Operating Co.'s outlook to positive from stable and affirmed the company's B3 corporate family rating, B2 probability-of-default , B3 $140 million 8 3/8% senior second-lien notes due 2010 (LGD4, 64%), provisional B3 shelf registration (LGD4, 64%) and SGL-3 speculative grade liquidity rating.

The positive outlook reflects Eschelon's improving operating fundamentals leading to an improving credit profile and the company's steady progress towards generating modest free cash flow in 2007, the agency said.

Although the improved fundamentals have generated sufficient positive pressure on the ratings, Moody's said the ratings are constrained by the uncertainties arising from Eschelon's acquisition strategy and its continuing high capital expenditures. Eschelon has expressed the intention to acquire another $50 million of revenue in the coming 2 to 3 years, which follows the acquisition of ATI in 2004, and about $50 million of revenues from the three acquisitions completed in 2006.

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