Fitch Ratings Upgrades Nextel's Rating to 'BB+'.

CHICAGO -- Fitch Ratings has upgraded the ratings on Nextel Communications Inc.'s (Nextel) senior unsecured notes to 'BB+' from 'BB' and Nextel Finance Company's senior secured bank facility to 'BBB-' from 'BB+' and Nextel's preferred stock rating to 'BB' from 'BB-'. In addition, Fitch has assigned a 'BBB-' rating on Nextel Finance Company's new five-year $4 billion senior secured revolving credit facility. The Rating Outlook is Positive.

The rating action reflects Nextel's continued progress in improving its credit profile by optimizing its capital structure through the company's proposed $4 billion revolving credit facility, the $770 million reduction in debt since the end of 2003, and future expectations for balance sheet improvement to further reduce financial risk. Moreover, Nextel's strong operational performance through its differentiated push-to-talk service, leading to high average revenue per user (ARPU), low churn, and solid net additions, underpins management expectations for healthy free cash flow (FCF) prospects in 2004 in excess of $1.7 billion.

Fitch believes Nextel's proposed $4 billion revolving credit facility removes one of the barriers for the company to improve its credit profile to an investment-grade level. While Nextel has realized significant credit profile improvement over the past two years with a pro forma debt to (LTM) EBITDA for the transaction of 2.0 times (x), compared with debt to EBITDA of 4.0x for 2002, the current ratings are constrained by the large amount of secured debt, which was approximately 38% of total debt at the end of the first quarter of 2004. Consequently, Fitch did not believe Nextel's rating would benefit materially from further unsecured debt reduction, absent an improvement in the secured/unsecured mix.

Key terms for the proposed credit facility allow for a release of the assets securing the credit agreement, a release of collateral and guarantees, an elimination of the structural subordination, and enable the credit facility to become pari passu with Nextel's senior unsecured notes upon meeting additional conditions.

Since the beginning of 2004, Nextel has achieved further debt reduction through the following transactions:

--Exercised the early buy-out option on its remaining capitalized lease of $191 million.

--Raised $500 million of 10-year notes and concurrently initiated a tender offer to retire $171 million of 9.5% notes.

--Called $608 million in convertible notes.

Furthermore, based on past actions, Fitch believes Nextel could opportunistically call the $1.6 billion of 9.375% unsecured notes when the notes become callable in November 2004, with a mix of cash and debt as well as potentially take the opportunity to refinance term loan E under certain conditions.

With news reports indicating that the FCC chairman Michael Powell has agreed to the basic framework of the consensus plan, including a grant of 10 MHz of 1.9 GHz spectrum, along with the rest of FCC expected to back the decision, the following discussion provides a view on likely credit impacts. Clearly, the allocation of 10 MHz of new spectrum in the PCS band addresses a key strategic issue for Nextel, offers additional alternatives for Nextel's long-term technology needs, and affords a definitive evolutionary path to deploy a high-speed wireless data network to remain competitive. Current considerations within the rating include the funding commitments for Nextel's consensus plan proposal, strong operational trends despite competitive threats from new push-to-talk offerings, ongoing balance-sheet reconstruction, and expected strong FCF generation.

Over the next three years, taking into account the higher level of spending for a next generation wireless broadband deployment and cash requirements associated with the consensus plan, Fitch expects Nextel to generate FCF during this period, albeit at significantly lower levels than in 2003. Fitch does expect Nextel's competitors to initiate vigorous legal challenges associated with a consensus plan ruling by the FCC, although the success of such a challenge is highly uncertain.