U.S. Cellular Corp. received mixed messages from debt rating agencies as Fitch Ratings affirmed the carrier’s ‘A-‘ senior unsecured debt rating and ‘BBB+’ subordinated debt rating, while Moody’s Investors Services downgraded the carrier’s senior long-term debt rating from A3 to Baa1 and its subordinated debt rating from Baa1 to Baa2. Both agencies did agree on reaffirming their negative outlook ratings for U.S. Cellular.
Fitch said it affirmed its rating due to the carrier’s relatively large cash balance, offsetting an increased execution risk associated with the evolving strategy changes to U.S. Cellular’s wireless operations, additional debt required in acquiring the former PCS PrimeCo operations in the Chicago market, competitive issues within the wireless industry including wireless number portability, and the resulting pressure all these factors place on positive free cash flow. Fitch noted it does not expect U.S. Cellular to post “meaningful” free cash flow through 2005.
Fitch also cited U.S. Cellular’s recent divestitures of non-core wireless markets in exchange for undeveloped PCS licenses and cash, which better position the carrier for long-term growth but will require short-term investments to build out.
Moody’s based its downgrade on a review of the company dating back to June 16 and said it reflects the ratings agency’s belief that the company’s ability to improve its earnings and generate meaningful free cash flow will be challenged by the competitive nature of the industry, significant ongoing capital expenditure requirements and slowing industry growth.
On the positive side, Moody’s did cite U.S. Cellular’s leading market share in the carrier’s six largest markets, near industry-leading 1.6-percent postpaid customer churn and strengthened competitive position due to bolstering its Midwest wireless operations following recent market swaps.
