Fitch Rates TDS & USM Credit Facility 'BBB+'

Concurrently, Fitch withdraws the ratings on TDS' $600 million unsecured revolving credit facility maturing in December 2009 and USM's $700 million unsecured revolving credit facility maturing in December 2009.

While the new credit facilities have substantially less capacity with a combined availability of $700 million compared with the previous facilities of $1.3 billion, Fitch believes TDS maintains a relatively good liquidity position absent any considerable acquisitions. TDS has a sizable cash position of $810 million and no near-term maturities. At the end of the 2009 first quarter, TDS and USM had close to full availability on their revolvers. Consolidated free cash flow (FCF) was a -$24 million in the last twelve months (LTM) due to sizeable non-recurring cash tax payments related to the settlement of the prepaid forward contracts during 2008. The settlement of the forward contracts and disposition of shares resulted in a current tax liability of $344 million for 2008. FCF at USM for the LTM was $267 million. Fitch expects FCF will be pressured in 2009 due to the loss of roaming revenue related to Verizon's acquisition of Alltel, the higher costs associated with certain strategic initiatives including upgrades to back office capabilities and higher acquisition costs for wireless subscribers. Given the weak economy and pressure on FCF, Fitch does not expect USM to pursue any sizeable new market build-outs. With its sizeable cash balances, TDS has an active share repurchase program. In 2008, TDS repurchased $200 million of TDS common or special common stock. In November 2008, the company announced a new share repurchase program for $250 million expiring in 2011.

The principle financial covenant in the credit facilities requires a minimum interest coverage ratio of 3.0 times (x) and a maximum leverage ratio of 2.75x. In addition, the terms and limitations in the new credit agreement are generally more restrictive.

The company has par call options on several remaining debt securities, including TDS' $500 million, 7.6% notes due 2041 and USM's $130 million 8.75% notes due 2032 that are currently callable, providing the flexibility to repay or refinance debt as conditions warrant. TDS also has other sources of liquidity that could be monetized including USM's cellular towers, a 5.5% minority interest in Verizon Wireless' Los Angles partnership and significant block of unbuilt spectrum.

The ratings reflect TDS' relatively conservative financial policies, the strong credit metrics with consolidated leverage of 1.2x, its diversified operations and good financial flexibility. These factors are balanced against concerns with the competitive challenges in both segments of its business. Concerns center on USM's ability to grow revenue and cash flow given the competitive environment impact on subscriber acquisition costs, the weak economy, the high penetration rates and the larger nationwide operators with greater resources. Customer acquisition costs have increased materially over the past year with a shift toward higher end phones. The aggressive subsidization of smartphones has resulted in effective price ceilings for other phones, putting pressure on margins. Fitch believes USM must better focus and take advantage of opportunities to remove costs from the business and improve its efficiencies to offset some of these pressures.

For 2009, USM provided guidance for revenue to be flat with an EBITDA decrease of approximately 10% primarily due to roaming revenue losses and certain strategic initiatives. Further material pressures on core operational results or changes in guidance could result in a Rating Outlook revision.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

Fitch Ratings, Chicago 
Bill Densmore, +1-312-368-3125 
John Culver, CFA, +1-312-368-3216 
Cindy Stoller, +1-212-908-0526 
(Media Relations, New York) 
cindy.stoller@fitchratings.com