Moody's upgrades Dobson, rates American Cellular loans Ba2, note B3

Moody's Investors Service said it assigned a B3 rating with a loss-given-default assessment of LGD5 (70%) to American Cellular Corp.'s $425 million senior unsecured notes due 2015 and a Ba2 (LGD2, 20%) rating to its new $850 million senior secured bank facility, which includes a $75 million revolving facility due 2012, $700 million term facility due 2014 and $75 million delayed-draw term facility due 2014.

The agency also upgraded parent company Dobson Communication Corp.'s corporate family and probability-of-default ratings to B2 from B3, senior unsecured notes to Caa1 (LGD5, 89%) from Caa2 (LGD5, 89%) and speculative grade liquidity rating to SGL-1 from SGL-2 and Dobson Cellular Systems, Inc.'s senior secured revolving facility to Ba2 (LGD1, 0%) from Ba3 (LGD1, 0%) and first-priority senior secured notes to Ba2 (LGD2, 20%) from Ba3 (LGD1, 9%).

Finally, Moody's downgraded Dobson Cellular's $325 million second-priority secured notes to B2 (LGD4, 54%) from B1 (LGD2, 29%).

The outlook is stable.

The upgrade to Dobson's corporate family rating reflects the company's relatively strong operating performance in 2006 and Moody's expectation that this momentum is likely to be sustained over the next couple of years, producing modest free cash flow growth and reducing the adjusted debt-to-EBITDA ratio to under 5.5x by the end of 2008.

The agency said Dobson's B2 corporate family rating reflects its relatively small scale as a rural and suburban cellular operator competing against better-capitalized national competitors, its meaningful dependence on its contractual roaming agreement with AT&T Mobility and the risk that this relationship may not continue indefinitely and Moody's expectation that Dobson is likely to continue to realize benefits from its recent network conversion to GSM from TDMA over the next couple of years.

The upgrade to Dobson's speculative grade liquidity reflects the improved liquidity position at American Cellular following that company's plan to refinance all of its debt obligations and Moody's improved confidence in the company's ability to grow its consolidated free cash flow over the next year.

The downgrade to Dobson Cellular's second-priority notes reflects the meaningful increase in consolidated senior secured debt arising from American Cellular's debt transaction, the agency said.

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