Moody's rates Rural Cellular floaters Caa2

Moody's Investors Service said it assigned a Caa2 (LGD5, 84%) rating to Rural Cellular Corp.'s new $115.5 million senior subordinated floating-rate notes.

The agency also confirmed the corporate family and probability-of-default ratings at B3, $60 million senior secured bank facility due 2010 at Ba3 (LGD1, 0%), $510 million 8¼% senior secured notes due 2012 at Ba3 (LGD2), $325 million 9 7/8% senior unsecured notes due 2010 at B3 (LGD4), the $300 million 9¾% senior subordinated notes due 2010 and $175 million senior subordinated floating-rate notes due 2012 at Caa2 (LGD5) and 12¼% junior exchangeable preferred shares due 2011 at Caa2 (LGD6).

The loss-given-default rate was changed to 15% from 18% for the 8¼% notes, to 52% from 57% for the 9 7/8% notes, to 84% from 86% for the senior subordinated notes and to 99% from 100% for the exchangeable preferreds.

The outlook is negative.

Proceeds from the new floating-rate notes will be used to refinance senior subordinated debentures that the company exchanged for its Caa2 (LGD6, 89%) 11 3/8% senior exchangeable preferred shares due 2010 on May 15.

The confirmation reflects Moody's belief that the company is likely to continue its very recent trend of net subscriber additions and cost reductions through the next couple of years, while maintaining sufficient liquidity.

The negative outlook reflects the agency's view that several of Rural's key credit metrics are weak for the B3 rating category and that execution risks to sustained subscriber growth remain, given the short period of progress relative to the longer-term challenges evident throughout much of the past three years.

While Rural's exchange of its senior preferred shares with accruing dividends into lower-coupon senior subordinated notes will result in a modest increase in cash interest costs, the exchange removes a key covenant restriction that has prohibited Rural from pursuing debt refinancing initiatives, the agency said. Following the exchange, Moody's believe Rural has a sufficient liquidity position, which may provide the company with an adequate amount of time to address some its debt refinancing requirements before 2010, when debt maturities become significant.

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