Fitch Downgrades BellSouth Telecommunications Senior Notes; Affirms Discount Notes

Business Wire, Oct 27, 2004

CHICAGO -- BellSouth Telecommunications Inc.'s sale and leaseback, $29.6 million senior notes is downgraded to 'A' from 'A ' by Fitch Ratings.

In addition, the BellSouth Telecommunications Inc.'s sale and leaseback $16 million discount notes are affirmed at 'A ' by Fitch.

The senior notes are downgraded following Fitch's downgrade of BellSouth Corporation's (BellSouth) senior unsecured debt. The rating action of BellSouth concludes a review of ratings after Cingular Wireless, a joint venture between BellSouth and SBC Communications, broadcast it will acquire AT&T Wireless.

The certificates are secured by the lease on a 660,000 square foot office building in Birmingham, AL. BellSouth has a bondable lease for 20 years on the property. Rental payments for the first 10 years are sufficient to pay the senior notes in full. Thus, the rating on the senior notes corresponds directly to the rating of BellSouth's corporate debt rating.

Rental payment ceases after the first 10 years of the lease. Therefore, the discount notes will accrete to a total of $45 million, due in conjunction with BellSouth's lease expiration in 2018. The discount notes are guaranteed by a residual value insurance policy, provided by RVI America (RVI). At the end of the lease term, the borrower has the option to sell the building for $45 million and if not, RVI will buy the building and retire the discount notes. The rating of the discount notes is entirely dependent upon the rating of RVI, which was affirmed by Fitch in October 2003 at 'A '.

For more information, see Fitch's Oct. 26, 2004 press release, 'Fitch Downgrades BellSouth to 'A'; Rating Outlook Stable'.