S&P cuts Hawaiian Telcom

Standard & Poor's said it lowered its ratings on Hawaiian Telcom Communications Inc. and related entities, including the corporate credit rating to B from B+, the $350 million senior notes due 2013 and $150 million subordinated notes due 2015 to CCC+ from B-, the senior secured credit facility to B from B+ with a recovery rating of 3 and Verizon Hawaii Inc.'s $300 million secured debentures to B from B+.

The ratings, save the recovery rating, were placed on CreditWatch with negative implications.

S&P said the downgrades reflect pressure on credit protection measures because of the additional expense associated with the recently announced delay in transitioning back office operations from Verizon Communications Inc. to BearingPoint Inc., the service provider chosen by Hawaiian Telcom to build and operate its back office systems.

It also reflects the impact of a heightened competitive environment, the agency said. Oceanic Time Warner began commercial deployment of cable telephony in Oahu in mid-2005, and Hawaiian Telcom has suffered recent access-line losses in the 5% to 6% range.

Taken together, the declining local service revenue and increased transition costs exert considerable pressure on the company's financial metrics, the agency said. Leverage already is aggressive, at 5.4x after adjusting for a one-time items such as a rate rebate, purchase accounting and transition expenses.

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