S&P cuts Citizens Communications Ratings On Credit Measures

Total debt outstanding was about $4.75 billion as of March 31.

"The downgrade reflects credit measures that are weak for the previous rating," said S&P credit analyst Allyn Arden. "Moreover, we do not expect any material improvement in key credit measures over the next couple of years given our expectations for continued access line erosion and slower growth of digital subscriber line (DSL) services."

A substantial dividend payout and ongoing share repurchases further limit the potential for debt reduction, Arden said.

Citizens provides communications services rural areas and small and medium-sized towns and cities. The company on Monday reported lower first-quarter profit, hurt by larger than expected access line losses.

S&P said the ratings reflect rising competition from cable companies who are offering telephone and wireless services as well, longer-term risk to regulatory support and an aggressive financial policy.

"We believe the company will face greater competition as cable operators continue to deploy less-expensive Internet Protocol telephony service in rural markets," said Arden. "As a result, access line losses will likely accelerate despite the company's promotional efforts to retain customers."

The credit ratings agency did note Citizens' solid position as an incumbent local exchange carrier mainly in less-competitive rural areas, relatively stable cash flow and high margins, and growth in high-speed data services, which has helped mitigate revenue declines from line losses.

But S&P said Citizens has been acquiring companies to reduce its reliance on certain mature markets, and additional transactions will likely be funded with new debt, potentially resulting in weaker credit measures.