Moody's Investor Service said Sandwich Isles Communications Inc. and Paniolo Cable Co. could be forced to file for bankruptcy because of the high network costs for their Hawai'i operations.

Earlier this week, the rating agency downgraded Paniolo's bonds to junk status, saying there's a "high probability" that the owner of the undersea fiber-optic cable connecting O'ahu to the Neighbor Islands will default on its debt.

"Moody's believes that both (Sandwich Isles Communications) and Paniolo could potentially file for bankruptcy before the reserves are exhausted," Moody's said.

Su Shin, a spokeswoman for Hono-lulu-based Sandwich Isles, could not be reached for comment.

Founded in 1995 by local entrepreneur Albert Hee, Sandwich Isles provides heavily subsidized phone lines to about 2,000 Native Hawaiian homesteaders.

The federal government pays Sandwich Isles about $13,000 per customer for providing the service — 100 times higher than the average subsidy for rural telephone service on the Mainland.

The company recently offered to buy Hawaiian Telcom Inc. for $400 million but that local telecommunications provider opted to go with a stand-alone, $460 million reorganization.

Denver-based Paniolo is owned by Blue Ivory LLC, which, in turn, is held by trusts set up in the names of Hee's children, according to the National Exchange Carrier Association.

The company has a 20-year lease with Sandwich Isles, which gives Sandwich Isles exclusive rights to Pani[0xad]olo's 358-mile fiber-optic cable network.

According to Moody's, Sandwich Isles pays about $15 million a year in lease payments to Paniolo.

But those lease payments have been in limbo for several months, after the National Exchange Carrier Association rejected Sandwich Isles' request to tap into a special fund paid for by consumers around the country.

Sandwich Isles has asked the Federal Communications Commission to overturn the decision. Moody's said an adverse ruling by the FCC could trigger a bankruptcy filing by Sandwich Isles because it "has limited financial flexibility and resources available to it."

Paniolo, meanwhile, has $8 million in reserves, which is "not quite sufficient to cover three-quarters of debt service on the notes," Moody's said.