Moody's may downgrade Hawaiian Telecom

Moody's Investors Service said it downgraded Hawaiian Telecom Communications, Inc.'s speculative grade liquidity rating to SGL-4 from SGL-3 and placed its B1 corporate family rating, Ba3 senior secured bank credit facilities and B3 senior and senior subordinated notes under review for possible downgrade.

These actions are based on Moody's concern that the company has limited resources to withstand the unexpected earnings and cash flow shortfalls arising from the continuing delay in creating fully functioning back office systems. In particular, the ongoing lack of full back-office system functionality is contributing to numerous operational problems, such as customer care and financial reporting, and distracting senior management which has resulted in Hawaiian Telecom incurring significant incremental expenses and lost revenues, the agency said. Consequently, the company's liquidity profile has weakened.

Moody's anticipates that usage under the revolver will continue to increase over the next few quarters, that covenant compliance, already slim, will be further pressured and that the company's financial and operating profile could be permanently impaired if the systems issues are not resolved quickly.

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