Fitch Initiates Coverage of Centennial at 'B-' IDR.

CHICAGO -- Fitch has assigned ratings for Centennial Communications Corp. (CYCL) and its subsidiaries as follows:

Centennial Communications Corp.

--Issuer default rating (IDR) 'B-';

--Senior unsecured notes 'CCC/RR6'.

Centennial Cellular Operating Co. (CCOC);

--Issuer default rating (IDR) 'B-';

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

--Senior unsecured notes 'B+/RR2';

--Senior subordinated notes 'CCC+/RR5'.

The Rating Outlook is Stable.

The IDRs at Centennial reflect its increased leverage and reduced financial flexibility as a result of the special dividend as well as the smaller scale as a regional operator in an exceedingly competitive operating environment. Fitch also believes a higher level of event risk is present with potential universal service funding reform. Total debt increased to $2.1 billion at the end of the third quarter as a result of the $550 million in additional debt with leverage rising to 5.8 times (x) compared with 4.4x at the end of fiscal 2005. Despite the approximate $60 million increase in interest expense, the company has sufficient liquidity with no near-term maturities and expectations for relatively modest free cash flow in 2007.

While operating margins have been pressured during 2006, Fitch expects margins to stabilize in 2007. CYCL's U.S. operations produced strong growth in subscribers from several initiatives whereas its Caribbean wireless operations experienced weakness in its growth although recent trends are positive. Through the first three quarters of FY06, compared to the same period in FY05, adjusted operating income margins declined over 300 basis points due to several factors including increased handset expense and network related expense. Positively with almost 70% of its GSM subscribers migrated, improved postpaid churn and steady gains with ARPU in its U.S. operations coupled with expected improved performance in its Caribbean operations, Fitch anticipates operating results will stabilize in 2007.

With the USF program under review this year, the combination of a slow-growing high-cost support fund and an ever increasing number of wireless operators making claims on the fund has created significant pressure on the program. The Federal Communications Commission (FCC) and Congress are expected to undertake reform on the program although material uncertainty exists surrounding the potential changes. However, wireless disbursements could face a higher level of event risk associated with reductions. For CYCL, high-cost support through the USF funding has risen rapidly since fiscal 2004 when the company collected $15 million, to 2006, when CYCL expects to receive approximately $41 million.

CYCL's liquidity is sufficient based on its cash position, undrawn revolver availability and lack of near-term maturities. Cash at the end of the third quarter of FY2006 was $89 million. CYCL's senior secured credit facility consists of a seven-year term loan that matures in 2011 with $550 million outstanding, with no annual amortization payments. The senior secured credit facility also includes a six-year $150 million revolving facility that matures in 2010. CYCL does not have any maturities until 2008 when its $145 million senior subordinated notes mature in December, although, under the terms of the senior secured credit facility, if the senior subordinated notes are not refinanced by June 15, 2008, the aggregate amount outstanding will become immediately due.

With the amendments to the credit facilities financial covenants in December 2005 to permit the special dividend, the company should have sufficient flexibility over the next couple of years. CYCL is also governed by a restricted payments basket at its 10.125% notes with approximately $93 million of availability at the end of the third quarter, with a debt incurrence test at CYCL of 7.5x and CCOC priority and pari pasu debt incurrence test of 4.75x.

The recovery ratings and notching for the senior credit facility ('RR1') reflects Fitch's expectation for excellent recovery prospects. The 'RR2' rating for the unsecured debt at CCOC reflects Fitch's belief of superior recovery prospects. The 'RR5' recovery rating on the senior subordinated notes at CCOC is based on Fitch's expectation for below-average recovery prospects. Fitch also would expect poor recovery prospects of 'RR6' for the $550 million of unsecured debt at CYCL given the junior ranking of the debt.

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