Standard & Poor's Rating Services has changed its assessment of Frontier Communications' (NASDAQ:FTR) financial risk profile from "significant" to "aggressive," causing the ratings agency to downgrade the telecommunications company even deeper into what's considered junk territory.
S&P lowered Frontier's rating from "BB" to "BB-", which drops the company three steps below investment grade.
Frontier's prospects, according to S&P, are constrained by a combination of tough wireline competition and the trend away from wireline toward wireless communication. The third quarter saw Frontier take a 3% hit in revenue and a 5% decline in EBITDA over the same period last year caused by annual access line losses of around 8%.
However, S&P does see Frontier's outlook as stable if it can maintain leverage in the low four-times EBITDA range. Frontier's rating could go up if it can lower its debt to EBITDA, S&P said, but because of the company's expected low cash flow after it pays off its dividend, S&P sees this as unlikely.
Dan Radovsky owns shares of Frontier Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.