PORTLAND – FairPoint Communications’ credit rating has been downgraded by three ratings agencies after the company revealed it’s considering hiring a financial adviser to explore a possible restructuring of its debt.

In a regulatory filing this week, North Carolina-based FairPoint said an adviser would evaluate the company’s financial situation. The company also said any cash flow disruptions could put a strain on its ability to meet its financial obligations.

In response, Fitch Ratings, Moody’s Investor Services and Standard & Poor’s Ratings Services all downgraded the company’s credit ratings. Fitch went so far as to say the possibility of bankruptcy was a concern.

“Hiring an adviser sometimes leads to a bankruptcy or a restructuring,” John Culver, senior director of Fitch’s telecommunications group, said in a telephone interview.

FairPoint last year bought Verizon Communications’ landline telephone and Internet business in Maine, New Hampshire and Vermont for $2.3 billion. During the process leading up to the acquisition, regulators and opponents of the deal questioned FairPoint’s financial ability to take on Verizon’s operations in the region.

Since the acquisition, the company has struggled with the poor economy and operational problems that have increased expenses and caused it to delay pushing out new products and services to lure new customers.

In its quarterly earnings report filed this week, FairPoint said it is “at risk” of not being able to meet all its debt obligations as soon as the end of June. If a default occurs, lenders could call in loans, foreclose upon collateral securing those loans or end their commitments to lend the company money, company officials said.

The company on Friday said it had no comment on the credit downgrades.

Credit ratings are important because they indicate a company’s financial soundness and its ability to repay its debts. A poor credit rating indicates a high risk of defaulting on a loan and leads to higher interest rates.

The Maine Public Utilities Commission is closely watching developments with FairPoint, commission spokesman Fred Bever said. If the company restructured its debt or filed for bankruptcy, nobody would lose telephone service and 911 operations would continue operating, he said.

Although the company is stabilizing its operations and its customer loss rate has slowed, the commission is still “concerned about the company’s financial stability as it moves through this transition period,” Bever said.

Wayne Jortner, general counsel with the Maine Public Advocate, the state’s utility watchdog agency, said some people hear the word “bankruptcy” when the idea of debt restructuring is brought up.

“But restructuring might mean nothing more than asking some of the creditors to extend a payment deadline or restructure the payments in some way,” he said.

Still, Jortner said he hasn’t been able to get FairPoint to turn over detailed information he is seeking on the company’s finances, its customer losses and its customer service problems. FairPoint has filed a letter with the PUC seeking protection from those questions, he said.

Jortner said FairPoint has said it wants to focus its resources on fixing its operational problems, not answering questions.

“That doesn’t really inspire confidence when you’re the dominant telephone utility in Maine – not to mention two other states – and you’re saying you can’t operate the utility and answer some questions at the same time,” Jortner said. “That’s not something I want to hear from the dominant telephone company in the state.”

AP-ES-05-08-09 1418EDT

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