Fitch Affirms Cincinnati Bell's IDR at 'B+'; Revises Outlook to Stable

Business Wire, Feb 7, 2008

CHICAGO -- Fitch Ratings has affirmed Cincinnati Bell Inc.'s (CBB) Issuer Default Rating (IDR) rating at 'B ', and has revised its Rating Outlook to Stable from Positive. In addition, Fitch has affirmed other ratings as listed at the end of this release.

Fitch's revision of its Rating Outlook to Stable from Positive reflects the Feb. 7, 2008 announcement of CBB's two-year, $150 million stock repurchase program. Fitch believes the Positive Outlook is no longer warranted, as previously expected delevering may now take longer to materialize than previously expected. The Stable Outlook is supported by the relative stability in its integrated wireline and wireless business model and operational improvements related to its wireless business (i.e., lower churn and strong post-paid additions).

The affirmation of CBB's 'B ' IDR reflects expectations for stable performance and the lower level of business risk associated with the company's business model which integrates the local exchange and wireless businesses. Historical free cash flow levels have been strong as measured by free cash flow margin (free cash flow as a percentage of revenues). Fitch notes that recent demand-driven data center expenditures and 3rd generation wireless spending have reduced free cash flow levels, but free cash flow is expected to improve significantly in 2008. In addition, CBB has moderately higher leverage relative than its peer group.

CBB's strategy focuses on defending and growing its local exchange, wireless and data center businesses. In 2007, some delevering occurred, in line with CBB's strategy to reduce debt. In 2007, debt declined $63.5 million from year-end 2006. Revenue in 2007 grew 6.2% over the prior year to $1.349 billion, owing to 12.4% growth in the wireless segment and 19.3% growth in the technology solutions segment. In 2007, wireline revenues, including data, constituted 60% of revenues, wireless generated 21% of revenue, and the technology solutions business also produced 19% of revenue. Competitive pressure in the wireline business caused a 5.9% decline in total access lines year-over-year. To protect the 17% of revenue derived from consumer wireline voice services, CBB has been aggressively bundling wireless and high-speed data services with its wireline voice services into a package CBB refers to as a 'super bundle.' As of the end of 2007, approximately 38% of the consumer households in its incumbent local exchange carrier (ILEC) operating territory subscribed to a super bundle, up from 32% at year-end 2006.

CBB's 'BB-' senior unsecured rating reflects the subordination to the company's senior secured debt and the Cincinnati Bell Telephone Co. (CBT) notes. At the end of 2007, the capital structure reflected approximately $546 million in CBT notes, secured CBB notes and credit facility debt that was senior to CBB's senior unsecured debt. The notching of the senior secured debt above the senior unsecured debt is indicative of the anticipated recovery by the senior secured debt holders and their first-priority claim on the economic interests of CBT and CBW.

CBB reported total debt outstanding of $2.010 billion at the end of 2007, a decrease of $63.5 million from year-end 2006. As of the end of 2007, $167.9 million of its $250 million secured revolving credit facility was available. CBB has no major maturities until the revolver matures in 2010, and the significant quarterly installments on the term loan do not start until the fourth quarter of 2011. In 2007, CBB reduced the tranche B term loan by $184 million. Of this amount, $75 million came from borrowings from an $80 million accounts receivable securitization program and the remainder from available cash. The receivables facility, which lowered its overall cost of financing, expires in March 2012. Investors should note that CBB's 7-1/4% notes due in 2013 will be callable beginning in July 2008. The notes contain a restricted payments test, which will limit the common stock repurchase program.

CBB's guidance calls for the company to generate approximately $150 million in free cash flow (as defined by the company) in 2008, a significant increase over the $59 million in 2007.

Fitch affirms the following ratings:

Cincinnati Bell, Inc.

--IDR 'B ';

--Senior secured credit facility 'BB /RR1';

--$50 million senior secured notes 'BB /RR1';

--$721 million senior notes 'BB-/RR3';

--$637 million senior subordinated notes 'B/RR5';

--$129 million convertible preferred stock 'B-/RR6'.

Cincinnati Bell Telephone (CBT);

--IDR 'B ';

--$230 million senior unsecured notes 'BB /RR1'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.