DBRS Maintains ALLTEL Corporation’s “A”/R-1 (low), Ratings Under Review With Negative Implications

DBRS has today maintained the ratings of ALLTEL Corporation (ALLTEL or the Company) Under Review with Negative Implications, following the recent shareholder vote that approved the sale of the Company to TPG Capital Partners and GS Capital Partners (the Buyers).

Assuming the transaction closes as currently envisioned, DBRS would assign ALLTEL Communications Inc. (ALLTEL Comm. Inc., a wholly-owned subsidiary of ALLTEL) a BB (low) unsecured rating, with the secured debt rated up to three notches higher. DBRS would likely assign a “B” rating to ALLTEL’s existing debt.

The all cash deal values ALLTEL at an enterprise value of approximately $27.5 billion. DBRS placed ALLTEL’s ratings Under Review with Negative Implications on May 22, 2007, following the announcement of this transaction.

DBRS notes that the Buyers have agreed to inject up to $4.6 billion in equity as part of this transaction or just under 20% of the equity value of ALLTEL (roughly $25 billion) with the remaining portion funded with debt. DBRS has estimated that the remaining financing required will be approximately $22 billion, which will be funded with a debt financing package at ALLTEL Comm. Inc. As part of this transaction, the Company expects to redeem its preferred shares for roughly $1.0 billion, refinance approximately $400 million in existing debt (this is expected to be legacy operating company debt) and pay certain fees and expenses associated with this transaction of approximately $900 million.

DBRS notes that the new debt at ALLTEL Comm. Inc. will effectively structurally subordinate the $2.3 billion of holding company debt at ALLTEL which is expected to remain in place following the completion of this transaction. While there is negative pledge language protecting ALLTEL bondholders from liens on assets at the ALLTEL level, DBRS notes that there is nothing protecting bondholders from a transaction such as this which leverages and secures the assets of its subsidiaries.

As noted above, DBRS believes that should this transaction close as currently contemplated, the new ratings on ALLTEL Comm. Inc. will likely be BB (low) for the Unsecured Bridge Facilities (includes commitments to borrow up to $7.7 billion). This rating is based on: (a) consolidated debt-to-EBITDA for ALLTEL expected to increase to roughly 7.80 times at the end of 2007 (currently below 1.0 times); (b) leverage expected to improve in 2008 to below 7.0 times due to organic EBITDA growth; and (c) free cash flow expected to remain positive in 2008.

DBRS expects the Senior Secured Bank Debt (up to $16.25 billion available under a term and revolver) at ALLTEL Comm. Inc. will benefit from: (a) first priority on the assets of ALLTEL stemming from the security of all of its assets; (b) guarantees from ALLTEL and all of its subsidiaries; and (c) leverage of just under 5.0 times debt-to-EBITDA. Additionally, given the recovery prospects of the assets of ALLTEL, DBRS believes that this rating could be rated up to three notches above the Issuer Rating of ALLTEL Comm. Inc. or BBB (low).

DBRS expects the rating of ALLTEL’s existing long-term debt will be at the “B” level, reflecting the structural subordination below the $22 billion of expected incremental ALLTEL Comm. Inc debt. As a result, over 90% of the Company’s debt is expected to rank ahead of the ALLTEL debt.

DBRS notes this transaction remains subject to regulatory approval and is expected to close in Q4 2007 or in Q1 2008. Finally, DBRS notes that its expected ratings could be subject to changes should the Buyers or the Company alter the proposed financing package and/or the structure of the transaction. DBRS will continue to monitor this transaction and does not expect to make its final rating pronouncement until the transaction has closed.

Note:
All figures are in U.S. dollars unless otherwise noted.