Hawaiian Telcom's operational and financial problems are being reflected in its debt rating, which yesterday was downgraded by Moody's Investors Service.

Besides lowering the company's junk-bond rating, Moody's also downgraded Hawaiian Telcom in a separate rating category that measures the probability of default for the company's bonds.

The downgrades are the latest negative news for Hawaiian Telcom, which has worked to overcome service glitches that occurred after the Carlyle Group bought it from Verizon Communications Inc. for $1.6 billion in May 2005.

Since then the utility has lost tens of millions of dollars and thousands of residential telephone customers, and is being investigated by the state Public Utilities Commission for poor service. Earlier this year Stephen Cooper, a turnaround expert whose past engagements included stabilizing Enron Corp. and Krispy Kreme Doughnuts, was named chief executive officer in an abrupt move, replacing Michael Ruley.

Hawaiian Telcom executives weren't immediately available for comment on Moody's downgrade.

The ratings agency said there are signs that Cooper and other new managers have been able to make improvements, refocus the business and reduce costs, but that Hawaiian Telcom's credit profile over the next 1 1/2 to 2 years is more consistent with a lower credit rating. Lower credit ratings can translate into higher borrowing costs for companies.

Moody's said Hawaiian Telcom's past performance "may have caused significant long-term damage to the company's competitive position."

It noted the number of the company's residential access lines declined by 11 percent last year, while total lines were down 7 percent.

Moody's said Internet lines rose, but that overall revenue was off 4 percent. It changed its outlook on the company debt to negative from stable.

"The negative outlook reflects the challenges that the new management team will have in restoring HI-Tel's operating performance to levels that are consistent with industry averages in light of declining revenues, access line losses and remaining issues related to fixing the information systems," the ratings agency said.

Moody's cut Hawaiian Telcom's corporate family rating from B2 to B3, a "junk" rating that's six levels below investment-grade ratings.

It also downgraded the company's probability of default rating to Caa1 from B. Moody's Web site said companies with this rating "are judged to be of poor standing" and are subject to very high default risk.