Fitch cuts outlook for FairPoint Communications

Fitch Ratings lowers outlook and some ratings for FairPoint Communications

• On 7:41 am EST, Friday January 23, 2009

CHICAGO (AP) -- Fitch Ratings lowered its outlook for FairPoint Communications Inc. and also cut some of the company's ratings, citing a higher-than-expected amount of access-line losses and stricter borrowing requirements.

The ratings agency reduced the Charlotte, N.C.-based FairPoint's outlook to "Negative" from "Stable." It also cut the company's issuer default rating and its $551 million senior unsecured notes due 2018 one notch further into junk status to "B+" from "BB-."

FairPoint has lost an unexpected number of access lines since it agreed in March to take over Verizon's land lines in Maine, New Hampshire and Vermont. The company has also lost more than 80,000 customers since paying $2.3 billion for Verizon's northern New England wired telephone and Internet business.

Earlier this month, FairPoint Chief Executive Gene Johnson remained confident that the company will win back old customers and lure new ones after it takes total control of the Verizon system on Jan. 31.

But Fitch said late Thursday that it is concerned about the "cutover," when FairPoint takes control of the Verizon business.

"While Fitch believes the extensive testing process reduces the risk to operations with regard to the cutover to FairPoint's own systems, such risk has not been completely eliminated," the ratings agency said in a statement.

Fitch is also worried that FairPoint is spending more under the transition services agreement and on the system integration than initially anticipated.

Upcoming capital spending and a high dividend payout will likely reduce FairPoint's financial flexibility more than previously expected, the ratings agency added.

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