Moody's cuts iPCS to B3, changes view to developing

Moody's Investors Service said it downgraded iPCS, Inc.'s probability-of-default rating to B3 from B2, affirmed the B3 corporate family rating and SGL-3 speculative grade liquidity rating, assigned an LGD2 (27%) loss-given-default assessment to the company's B1 $300 million first-lien senior secured floating-rate notes due 2013 and assigned an LGD5 (75%) loss-given-default assessment to its Caa1 $175 million second-lien senior secured floating-rate notes due 2014.

The outlook was changed to developing.

The rating actions follow the company's announcement that it is issuing $475 million of senior floating-rate notes and will use the proceeds, along with $55 million of cash on hand, to refinance its existing 11½% and 11 3/8% senior notes due 2012 and to fund a $185 million special dividend to common stockholders.

Pro forma for the transaction, iPCS' adjusted leverage is expected to increase to about 6.8x immediately after the close of the transaction before dropping to 5.4x by the end of 2008, a level Moody's described as acceptable to current ratings.

The company's upgraded network and strengthened distribution channels is leading to lower churn and faster subscriber growth, which in turn is expected to contribute to margin and earnings growth. The agency said, however, that this anticipated progress is negatively impacted by increasing bad debt expense, higher interest expense resulting from the company's significantly increased debt burden and the ongoing disputes and lawsuit the company is currently engaged in with Sprint Nextel.

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