Oct. 20, 2002 – There's an 80 percent chance that Innovative Telephone is one of the reasons Standard & Poor's has reported a negative outlook for the phone company's principal source of capital, a not-for-profit wholesale bank located near Washington, D.C.
In one of its periodic ratings, issued on Oct. 7, S&P, one of the nation's ranking evaluators of creditworthiness, reviewed the status of the National Rural Utilities Cooperative Finance Corp., a multi-billion-dollar institution that borrows large sums of money on Wall Street and then makes smaller-scale loans to rural electric and phone companies.
S&P, after noting some of the strengths of CFC, then gave it a negative outlook for the future largely because of "credit weakness among some of its top borrowers." CFC's annual reports show, indirectly, that Innovative Telephone is one of its 10 largest borrowers, with a total indebtedness of $615.6 million as of May 30. (See "Phone company borrowing exceeds $615 million".)
Standard & Poor's does not identify borrowers by name unless those borrowers have failed, according to CFC, to meet their legal obligations to that lending agency. But S&P's description of CFC's problems may well point, in part, to the local phone company.
First, S&P notes special problems created for CFC by loans to the telecommunications industry: "The overall stability seen in the rural electric sector may be contrasted with greater volatility in the rural telecommunications sector, to which CFC makes loans . . ."
It then goes on to point out that five of the 10 companies holding the largest CFC loans are in the telecommunications sector. Further, it adds: "S&P has concluded that four of these borrowers exhibit non-investment-grade characteristics . . ."
Elsewhere in the report, S&P says that half of the 10 largest borrowers "exhibit speculative-grade characteristics."
Since Innovative is one of CFC's five largest telecommunications borrowers, the chances are four out of five, or 80 percent, that it is one of the entities causing S&P's concerns.
Given the Oct. 7 issue of this latest rating and the length of the credit-review process, it is likely that it was made without S&P knowing of either the current strike against Innovative Telephone or the phone company's current dispute with the Public Services Commission regarding the utility's failure to pay more than $600,000 it has been billed by the PSC.
While previous S&P reports on CFC have noted worries about too much concentration of its loans to top borrowers and too many of those loans being in the telecommunications industry, they have not discussed those borrowers in such dramatic — for financial reporting — terms as "speculative-grade characteristics."
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