Frontier Communications Corp. (NYSE: FTR) is having a rough 2017. After its shares hit a decade-plus low of $1.19 earlier in May, now there has been a recovery, despite many analysts downgrading the stock after earnings and after it slashed its dividend. And now Frontier has faced a new downgrade — from Moody’s, on its credit ratings.

Moody’s Investors Service downgraded Frontier Communications’ corporate family rating to B2 from B1. Another word of caution was that Moody’s is maintaining its “negative” outlook, even after the formal downgrade.

Monday’s downgrade was said to be based on Frontier’s persistently weak operating trends. The agency showed that the performance within its acquired California, Texas and Florida markets remains exceptionally weak after sharp subscriber losses being followed by sequential declines in quarterly EBITDA. The negative outlook remains unchanged due to Moody’s expectation of continued pressure on subscribers and EBITDA.

Several other issues were brought up for the downgrade. Moody’s believes that Frontier’s leverage will be above 5× at year-end 2017, above the Moody’s limit of 4.75× for Frontier’s prior B1 rating.

One issue that Moody’s did talk up was that Frontier’s liquidity actually will improve as a result of its recent dividend cut. The agency sees a modest cash build in 2017 and 2018. Moody’s also noted that Frontier indicated its intent to issue additional secured debt in the second quarter, and that this could improve its liquidity position further and address most of its near-term (debt) maturities before 2020. Still, Moody’s warned:

Moody’s views the dividend cut and potential secured debt issuance positively, but these actions do not fully offset the pressure from Frontier’s weak operating performance. The company has identified material cost synergies which could help offset the pressure on EBTIDA, but full realization of these initiatives could take up to three years. As Moody’s has previously signaled, Frontier’s narrow equity cushion suggests the company has low leverage tolerance, which limits the timeframe over which Frontier’s credit metrics can exceed Moody’s targets. Moody’s will consider a stable outlook if Frontier’s operating metrics improve and EBITDA stabilizes. Moody’s believes that management is taking action to reverse the company’s negative trajectory, but the timeframe for tangible results is beyond the horizon to maintain the B1 corporate family rating.

Other positives at Frontier are being offset by declining revenues, EBITDA and margins that result from secular decline, competitive pressure, poor execution in newly acquired states, and the risk that Frontier may not have the discipline to continue to adequately invest in network modernization.

Most equity investors do not react to credit ratings changes of this magnitude. That being said, credit risks can increase borrowing costs and can make refinancing activities more costly. Frontier Communications shares were last seen trading up 2% at $1.49, within a 52-week range of $1.19 to $5.30. Its market capitalization is a mere $1.76 billion.

To show how leveraged up this company is, a review from Thomson Reuters showed that Frontier Communications had just over $17.5 billion in long-term debt and $24.12 billion in total liabilities. Its balance sheet at Thomson Reuters was shown to be $28.45 billion in total assets.

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