Moody’s cuts rating on Hawaiian Telcom

The phone company is considered a high credit risk for companies

Moody's Investor Service downgraded its assessment of Hawaiian Telcom Communications Inc. yesterday and changed its outlook on the company from stable to negative.

The bond-rating agency lowered the isle phone company's rating from B2 to B3 and cut its probability-of-default rating to Caa1, for companies it considers in poor standing and a high credit risk.

Approximately $1.1 billion of debt is affected.

Hawaiian Telcom officials were not available to comment on Moody's downgrade yesterday.

Moody's said system problems that began in 2006 "may have caused significant long-term damage to the company's competitive position."

The Moody's report follows a downgrade by another rating agency, Standard & Poor's Rating Services, in August.

S&P revised its outlook for Hawaiian Telcom from stable to negative due to the company's continuing operational difficulties and increased competition from Oceanic Time Warner Cable. S&P assigned Hawaiian Telcom a 'B-' corporate credit rating.

Reasons that Moody's cited for its downgrade included: An 11 percent decline in residential access lines in 2007, along with a 7 percent drop in total lines, while high-speed data lines grew by just 1.3 percent. Overall revenues last year, meanwhile, fell by almost 4 percent.

Moody's said its negative outlook "reflects the challenges" faced by Hawaiian Telcom's new management team -- led by high-profile restructuring guru Stephen Cooper of Kroll Zolfo Cooper, hired in February.

"We also note that (Hawaiian Telcom) currently has limited resources to withstand additional earnings and cash flow weakness," the Moody's report said.

Hawaiian Telcom was spun off from Verizon Communications Inc. and acquired by the Carlyle Group in a $1.6 billion leveraged buy-out in May 2005.