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Chorus credit rating outlook upgraded to 'stable'

Chorus, the telecommunications network operator, has been given some breathing room from Moody's Investors Service, which has upgraded the outlook on the company's credit rating due to the regulator's draft ruling on wholesale copper line pricing.

The Wellington-based company's Baa3 rating was affirmed and the outlook lifted to 'stable' from 'negative' due to the Commerce Commission's draft decision on what Chorus can charge on its unbundled copper local loop and unbundled bitstream access services. Moody's estimates the aggregate wholesale price it can charge will be 11 percent higher than the steeper regulated price cuts it was facing, translating into an increase in earnings before interest, tax, depreciation and amortisation of $80 million in the 2015 financial year from what was previously expected.

"The change in outlook to stable reflects Moody's view that application of the NZCC (Commerce Commission) regulatory decision, which would apply from 2015, will strengthen Chorus's credit metrics to a level that is more consistent with the Baa3 rating," Moody's analyst Mary Anne Low said in a statement. "We will continue to work closely with Chorus to consider the full impact of the final decision and management's ongoing operational efficiency and capital strategies."

The Moody's upgrade follows Standard & Poor's, which also shifted its outlook to 'stable' and affirmed its BBB rating for Chorus.

The telecommunications regulator's draft determination set a limit of $38.39 monthly rental for access to Chorus's traditional copper lines network for broadband internet services. The rental, which had been $44.98, was cut to $34.44 effective Dec. 1 before the most recent draft determination. Chorus said the new pricing would slash annual earnings by $80 million, less than half of the $170 million hit it had projected under the originally proposed new pricing.

Low said Chorus's cost cutting exercises to mitigate the impact of harsher price regulation also fed the improved outlook.

Shares of Chorus fell 0.6 percent to $2.68, and have climbed 87 percent this year. The stock is rated an average 'hold' based on eight analyst recommendations compiled by Reuters, with a median price target of $2.80.