The ratings on competitive local exchange carrier (CLEC) U.S. TelePacific Holdings Corp. reflect a "highly leveraged" financial risk profile, including debt to EBITDA that is elevated in the 8x area. This leverage metric incorporates our adjustments for the present value of operating leases and circuit lease obligations, as well as debt-like treatment of about $300 million of preferred stock. Our view of business risk as "vulnerable" recognizes substantial competition from much larger, better-capitalized incumbent telephone companies, as well as from cable television operators that are actively targeting more sophisticated telecom customers. Business risk also incorporates the resulting pricing pressure, a lack of sustainable competitive advantages, and unfavorable changes in intercarrier compensation. Tempering business factors include growth opportunities from recent acquisitions
