Rural Cellular plans $175 million 7-year deal for Tuesday pricing

By Paul Deckelman

New York, Oct. 31 - Rural Cellular Corp. announced plans on Monday to sell $175 million of seven-year senior subordinated floating-rate notes, with most of the proceeds to be used to take out existing bond debt.

High yield syndicate sources said that the quickly developing deal was sold to potential investors via a conference call on Monday afternoon, and is expected to price around 11 a.m. ET Tuesday via joint bookrunners Lehman Brothers and Morgan Stanley.

The new bonds will be non-callable for the first two years after issue, except for the standard equity clawback allowing the company to redeem up to 35% of the issue amount using the proceeds of any equity financing during that time. After that, the bonds will be callable, first at 102% of par, then at 101%, and finally at par, a source said.

The deal is being sold under Rule 144A with registration rights.

The Alexandria, Minn.-based telecommunications company provides wireless service to customers in 15 states in the Midwest, the Northeast, and the South.

It plans to use proceeds from the offering to redeem its $125 million of outstanding 9 5/8% senior subordinated notes due 2008, including payment of the call premium, accrued interest and related expenses. Any remaining proceeds could be used for general corporate purposes, possibly including replenishing cash used to pay preferred stock dividends and repurchasing preferred securities.

Moody's Investors Service assigned a Caa2 rating to the proposed bond offering, in line with its rating on Rural Cellular's existing senior subordinated bond debt (besides the 9 5/8% notes, from which Moody's will withdraw its rating upon their redemption, the company also has $300 million of 9¾% senior subordinated notes due 2010). Pro forma for the sale of the new bonds and the redemption of the 9 5/8s, the company will have about $1.37 billion of rated debt, according to data from Moody's.

The ratings agency on Monday also affirmed its ratings on Rural Cellular's existing debt, but changed the ratings outlook to negative from stable, citing the likelihood that ratings will be lowered in the next 12 to 18 months should the company not be able to improve its cash flows and subscriber retention.

Moody's did note, however, that the proposed refinancing of the 9 5/8% notes with the new-issue proceeds, along with the separate drawdown of $58 million under the company's $60 million senior secured revolving credit facility, which was done against the possibility that Rural Cellular might not have access to making additional draws from the facility at a later date "does increase the company's financial flexibility," since it will have some $120 million of cash pro forma for the new offering.

Standard & Poor's currently rates the existing senior subordinated notes at CCC, with a negative outlook.

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