Rating agency Standard and Poor's (S&P) has lowered
Frontier Communications Corporation
) rating to junk status but has retained a stable outlook. Stiff
competition in the cable business and wireless substitution
mainly compelled the rate cut.
S&P has downgraded Frontier's corporate credit and senior
unsecured debt ratings by one notch to BB- from the previous BB
rating status. Following the rating downgrade, Frontier's debt
now falls three tiers below the investment grade and could face
further rate cuts if it fails to improve its operations.
Earlier in July 2010, Frontier Communications acquired
Verizon Communications Inc.
) local wireline operations in 14 US states. With this
acquisition, Frontier has taken control of over 4.8 million rural
landline customers thus trebling in size and has become the
largest rural service provider in the United States.
Nevertheless, Frontier's legacy wireline business remains
highly challenged based on competition from wireless and other
competitive offerings like
Time Warner Cable
) VOIP (voice over internet protocol) service. The access line,
which accounts for most of Frontier's overall revenue continues
to decline and has registered an 8% year-over-year drop.
The company is currently integrating Verizon's assets, which
when completed is expected to deliver cost synergies for the
company. Significantly, the rating firm suggested that it could
raise the telecom company's ratings if it could decrease its
access line loss and increase data services revenue.
Currently, Frontier is focusing on improving its balance sheet
position by lowering its financial leverage by means of debt
reduction, EBITDA improvement and dividend cuts. In 2012, the
company lowered its dividend payout by 47% and recently repaid
its 6.25% senior debts Mention the amount of debt repaid from the
available cash in hand.
We believe the rating downgrade will hurt the company's effort
to improve its balance sheet position, as access to capital
market will likely to become more expensive for the company. We
believe Frontier needs to curtail its persistent access line loss
to improve its overall business, thus pausing further rate cuts.
Other Stocks Set for Earnings Release
Another related company,
), will report its fourth quarter 2012 results on Feb 18. For
Windstream, the current Zacks Consensus Estimate for the fourth
quarter stands at 13 cents.
Currently, Frontier Communications carries a Zacks Rank #3
FRONTIER COMMUN (FTR): Free Stock Analysis
TIME WARNER CAB (TWC): Free Stock Analysis
WINDSTREAM CORP (WIN): Free Stock Analysis
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