Fitch Ratings has placed Telecom's long- and short-term debt on "rating watch negative" in the wake of the decision to spin off Chorus as a separate company.
Fitch is the second ratings agency to downgrade Telecom; Moody's made a similar announcement last week.
In a statement posted on the NZ Stock Exchange, Fitch notes that "key from a bond holder perspective is that the agreement with Crown Fibre Holdings, a Government vehicle, on the UFB will result in the disposal of significant assets into a separately listed entity."
Fitch says it "expects to resolve the RWN (ratings watch negative) once greater clarity emerges over the capital structure and financial policies of the remaining TCNZ entity, and details in this regard are scheduled to be announced in September.
"Fitch believes possible outcomes include an affirmation of the A- ratings or a downgrade of the ratings. Any rating downgrade would be between one and two notches."
The ratings watch negative status Fitch has placed on Telecom reflects the loss of the "distinct advantage" of owning both fixed-line and mobile platforms" and Fitch believes Telecom's risk profile will increase after the split.