NEW YORK-Two bond rating agencies have placed the outstanding and planned debt of Citizens Utilities Co. on a credit watch for possible downgrade because of the power company’s planned spinoff of its telecommunications business.
Citizens Utilities provides communications and public-utility services to about 1.7 million customers in 21 states. As one of the largest independent telecommunications companies in the country, it had about 874,000 access lines at the end of 1997. It also has an investment in Centennial Cellular Corp., which is itself for sale.
Duff and Phelps Credit Rating Co., Chicago, said it “has historically viewed the diversity of public services and telecommunications businesses as credit enhancements.”
The agency noted, however, that “Citizens’ telecommunications business has performed below expectations over the last year and faces higher competitive threats than [its] public-service business.”
Fitch IBCA, New York, already downgraded Citizens’ debt to AA from AA+ in December. “Beginning in late 1996 and throughout 1997, the company’s failure to generate revenues in its telecommunications business commensurate with the high level of capital investment and operating expenses resulted in lower than anticipated growth in [cash flow] and net free cash flow and (therefore) weaker bondholder protection measures.”
Like Duff & Phelps, Fitch is reviewing whether to downgrade the company’s investment grade debt further because Citizens announced a plan to split its power and telecommunications businesses into two separate, publicly traded companies.
