Fitch upgrades Frontier, cuts Verizon subsidiaries

Fitch Ratings said it upgraded Frontier Communications Corp.'s issuer default rating, senior unsecured credit facility and senior unsecured notes and debentures to BB+ from BB, New Communications Holdings, Inc.'s (Spinco) issuer default rating and senior unsecured notes to BB+ from BB and the series 1995 industrial development revenue bonds issued through Maricopa County Industrial Development Authority of Arizona to BB+ from BB.

The agency also downgraded the issuer default ratings of Verizon North Inc. and Verizon West Virginia to BB+ from A as well as Verizon North's $200 million unsecured notes due 2028 and Verizon West Virginia's $50 million private placement notes due 2029 to BBB- from A.

The outlook is stable.

The rating actions are in anticipation of the July 1 closing of the acquisition of some access lines from Verizon Communications, Inc. To complete the transaction, Spinco, a subsidiary of Verizon Communications, will merge with and into Frontier.

The agency said the upgrade of Frontier reflects the meaningful improvement anticipated in its credit profile following the Verizon transaction. Fitch anticipates that Frontier's pro forma gross debt-to-EBITDA ratio at year-end 2010 will be in the 3.0 to 3.1 times range, substantially lower than the 4.3 times recorded at year-end 2009, due to the delevering effect of the transaction.

In addition, cash flows will benefit from Frontier's planned 25% reduction in its per-share common dividend after the close of the transaction, Fitch said. It added that the reduction will enable Frontier to more rapidly expand the availability of broadband services in the acquired properties, a key element in the company's plans to reduce access line losses to competitors.

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