Fitch Affirms Windstream's IDR at 'BB+'; Assigns Stable Outlook

Fitch has removed the ratings from Rating Watch Negative and assigned a Stable Rating Outlook. Other subsidiary ratings were affirmed as listed at the end of the release.

The affirmation of Windstream's ratings and assignment of a Stable Outlook concludes a review of the company's prospective credit profile following the completion of a series of four acquisitions within less than a year. The last of the acquisitions, Iowa Telecommunications Services, Inc. (Iowa Telecom), closed yesterday. To close the transaction, the company issued approximately 26.7 million shares of stock valued at $284 million, paid approximately $260 million in cash and repaid all of Iowa Telecom's outstanding debt, which was approximately $613 million. Windstream used balance sheet cash and borrowings on its revolver to fund the cash portion of the transaction and repay outstanding Iowa Telecom debt.

While leverage has increased as a result of the transactions, on a pro forma basis the rise is relatively modest, and Fitch expects leverage will return to historical levels in a relatively short period as synergies are realized, and debt remains stable or declines slightly. In addition, Fitch believes that, while there is integration risk as a result of the transactions, the company's experience with acquiring and incorporating modest-sized acquisitions, as well as the fact that the integration of earlier acquisitions is completed or well underway, will reduce the potential for operational issues.

Windstream's 'BB+' IDR incorporates expectations for the company to generate strong operating and free cash flows and to have access to ample liquidity. Recent acquisitions have added meaningful scale to the company, partly offsetting the effect of competition on the company's operations, which is Fitch's primary concern.

Fitch expects leverage to be in the 3.4 times (x) to 3.5x range on a pro forma basis at the end of 2010. Fitch estimates the transactions increase leverage by approximately 0.2x, thus increasing leverage slightly over the upper end of the company's 3.2x to 3.4x historical range until synergies are fully realized. To complete the four acquisitions, Windstream used cash and debt, which in the aggregate was approximately $1.7 billion, and issued approximately $550 million in equity. Total incremental debt arising from the transactions is expected to be approximately $1.2 to $1.3 billion by the end of 2010, in Fitch's estimation. The acquired companies generated approximately $330 million in historical annual EBITDA, prior to expected synergies of approximately $85 million.

Windstream's liquidity on March 31, 2010 was strong, given $580 million in cash on the balance sheet and availability of approximately $492 million on its revolver (net of outstanding letters of credit). The company has extended the maturity of $409 million of the $500 million revolving credit facility from July 2011 to July 2013, with the remainder maturing in July 2011. In October 2009, Windstream amended its senior secured term loan facilities to extend their maturities. The maturity of $168.9 million of the $283 million outstanding on term loan A was extended from July 2011 to July 2013. The term loan B, which as of March 31, 2010 had a $1.362 billion balance outstanding, now has approximately $1.073 billion maturing in December 2015 rather than in July 2013. The amendment and extensions resulted in certain increased fees, including increased interest rates on loans with extended maturities.

Principal financial covenants in the credit facilities require a minimum interest coverage ratio of 2.75x and a maximum leverage ratio of 4.5x. There are limitations on capital spending, and the dividend is limited to the sum of excess free cash flow and net cash equity issuance proceeds subject to pro forma leverage of 4.5x or less.

Other than the portion of the revolver and term loan A facility maturing in 2011, upcoming maturities are nominal through 2012. Liquidity is also supported by free cash flow, which Fitch estimates will be in the $200 million to $300 million range for 2010. Capital spending, per the company's guidance, is expected to range from $360 million to $390 million.

Fitch has affirmed Windstream's subsidiary ratings, assigned a Stable Rating Outlook and removed the ratings from Rating Watch Negative as follows:

Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp. (co-issuers)

--IDR at 'BB+';

--Senior notes at 'BBB-'.

Windstream Georgia Communications

--IDR at 'BB+';

--Senior Notes at 'BBB-'.

Windstream Holdings of the Midwest

--IDR at 'BB+';

--Senior Notes at 'BB+'.

The Rating Outlook for all ratings is Stable.

The rating reflects the application of Fitch's current criteria which are available at '[ www.fitchratings.com ]' and specifically include the following reports:

--'Corporate Rating Methodology' (Nov. 24, 2009);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Additional information is available at '[ www.fitchratings.com ]'.

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Contributing Sources

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Fitch Affirms Windstream's IDR at 'BB+'; Assigns Stable Outlook