|[February 24, 2014]
Fitch Affirms Rogers Communications at 'BBB+'; Outlook Revised to Negative
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the ratings for Rogers Communications (News - Alert) Inc.
(Rogers) as follows:
--Issuer Default Rating (IDR) at 'BBB+';
--Senior unsecured notes at 'BBB+'.
The Rating Outlook on the IDR has been revised to Negative from Stable.
The Rating Outlook revision to Negative is reflective of the increase in
near-term financial risk associated with Rogers' $3.3 billion spectrum
acquisition in the recent 700 MHz spectrum auction. Notably, Fitch
acknowledges the strategic importance and several longer-term advantages
of this highly valuable spectrum that Rogers paid C4.32 per MHz/POP in
its major markets. The amount is similar to prices paid in the U.S. for
700 MHz spectrum during past transactions.
Rogers should realize significant long-term benefits by aggregating the
contiguous 700 MHz spectrum blocks to deploy a 20 MHz channel with
increased bandwidth, capacity and coverage capabilities that enhances
network quality. Rogers' subscribers with existing LTE (News - Alert) devices such as
smartphones, tablets and dongles will have immediate access to take
advantage of this new spectrum once deployed. The spectrum acquisition
also allows Rogers to leverage the existing AT&T (News - Alert) ecosystem for 700 MHz
devices. Consequently, Fitch believes this strategic investment should
strengthen Rogers' ability to monetize increased data usage over the
longer-term to drive growth in cash flows.
However, the cash requirements around the spectrum acquisition were
substantially above Fitch's expectations for the spectrum auction and
will increase leverage beyond the current 'BBB+' rating category for an
extended period of time. Fitch estimates leverage at the end of 2014
will be in the range of 2.9 times (x)-3.0x. As such, Rogers has limited
flexibility within its current rating for operating shortfalls, material
unexpected cash requirements from other initiatives or any additional
leveraging events. Thus, Rogers must reduce leverage expeditiously to
improve its financial risk profile. Fitch believes Rogers has sufficient
capacity with current free cash flow (FCF) expectations to reduce
leverage through debt reduction and EBITDA growth back within its range
during the next two years.
KEY RATING DRIVERS
The ratings reflect Rogers' consistent operating performance during the
past several years as its business segments have scaled further, both
organically and through acquisitions, resulting in a higher level of
profitability and cash flows. Rogers continued capital investment has
enabled the company to deploy a high quality infrastructure in a timely
manner with good diversity of service platforms to compete effectively
against its mostly national peers. Accordingly, Rogers' wireless and
cable operations underpin the significant leverage inherent in its
operations that has led to stable credit measures.
Fitch believes Rogers' mix of cable and wireless assets competitively
positions the company and allows for significant revenue diversification
through its robust bundled service offer. Rogers has also completed
several strategic transactions in the past couple of years to secure
rights for highly valued sports content. This mix of assets should allow
Rogers to sustain cash generation, adjusted for cash taxes, over the
longer term. As the able and wireless segments further mature, Rogers
will need to seek other avenues in emerging businesses to cultivate
Financial Flexibility and Liquidity
Rogers' has significant cash requirements during 2014 of approximately
CAD4.9 billion to address its strategic imperatives. This includes
US$1.1 billion of debt maturing in early 2014, CAD3.3 billion associated
with the spectrum auction and about CAD500 million in cash related to a
couple smaller transactions.
Rogers' current liquidity includes CAD2.3 billion of cash and full
availability under its CAD2 billion credit facility that matures in July
2017. Additionally, Rogers' CAD900 million accounts receivable
securitization program, expiring in December 2015 has CAD200 million of
availability. Fitch's FCF expectations for Rogers in 2014 are similar to
2013 levels. As such, Fitch believes Rogers will need to seek increased
liquidity either through additional bank lines or the capital markets.
Rogers has focused excess capital on its shareholders through its
dividend and share repurchases as Rogers was within its targeted
leverage range. In the past five years, Rogers returned to shareholders
an average of CAD1.6 billion. Going forward, Fitch believes Rogers will
refocus its financial policy to ensure sufficient financial flexibility
for the anticipated debt reduction. As such, Fitch expects the company
will substantially moderate future increases to the dividend and refrain
from share repurchases.
During 2013, Rogers launched a nascent credit card operation, which if
successful, could consume a material level of cash from operations
beyond 2013. Fitch believes these operations could represent a higher
level of risk. Rogers will need to prudently manage the credit card
business with the appropriate internal controls to mitigate this
increased risk. Fitch also does not expect material changes to the high
level of capital spending given the competitive need to invest in the
Positive: Future developments that may, individually or collectively,
lead Fitch to affirm the ratings with a Stable Outlook include:
--For Rogers to take steps by executing on its deleveraging plan and
making progress to return within its targeted leverage range as expected.
Negative: Future developments that may, individually or collectively,
lead to negative rating include:
-- Discretionary actions by Rogers of adopting a more aggressive
financial strategy or an event driven merger and acquisition activity,
that increases sustained net leverage beyond 2.5x for an extended period
of time beyond current expectations.
-- Weakened operating performance driven by competitive intrusions.
-- Material increase in shareholder based initiatives.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
Rating Telecom Companies
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