TEXT - Fitch rates Rogers Communications $1 bln debt offering

Fri Mar 1, 2013 3:07pm EST

(The following statement was released by the rating agency)
    March 1 - Fitch Ratings has assigned a 'BBB' rating to Rogers Communications
Inc. (Rogers) two-tranche senior unsecured notes offering consisting of US$500
million of 10-year notes and US$500 million of 30-year notes. The Rating Outlook
is Stable.

Rogers intends to use the net proceeds for general corporate purposes. 

The terms and covenants of the new debt offering are virtually the same as 
Rogers existing debt. The notes are fully and unconditionally guaranteed by 
Rogers wholly owned subsidiary, Rogers Communications Partnership, and rank pari
passu with Rogers existing unsecured senior debt. 

KEY RATING DRIVERS

The ratings for Rogers reflect the solid profitability and free cash flow (FCF) 
generation from the significant operating leverage inherent in both the wireless
and cable operations that has led to stable credit measures. Consequently, the 
company has significant flexibility in managing its financial policies including
leverage targets and return of capital to shareholders.

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. This mix of assets should allow Rogers to sustain 
cash generation, adjusted for cash taxes, over the longer term. For 2013, Fitch 
expects Rogers to maintain leverage within its targeted net leverage range of 
2.0x to 2.5x while returning a material level of cash to shareholders primarily 
through its dividend. Gross leverage at the end of 2012 pro forma for this debt 
issuance and accounts receivable draw was approximately 2.7x (including Fitch's 
adjustments). Net leverage was 2.3x. Fitch expects Rogers net leverage will 
remain within the higher part of its range during 2013.

Both the wireless and cable operations have experienced greater competitive 
threats which will continue for the foreseeable future. Wireless postpaid voice 
ARPU has eroded considerably in the past due to increased competitive intensity 
in part from new entrants. The fourth quarter of 2012 was the first quarter 
since 2010 where postpaid ARPU stabilized and demonstrated growth year over 
year, reflecting the continued strong subscriber demand for data services and 
the moderating declines in voice ARPU.  Consequently, wireless network revenue 
grew 4% in the quarter and 2% for 2012. Rogers also faces some challenges with 
continued improvement of postpaid churn thereby increasing net addition share to
better sustain revenue growth over the longer-term. Roger's Ontario markets, 
which are their largest, have experienced a greater level of competitive 
activity from new entrants.

The expansion of the IPTV footprint across Rogers' markets and aggressive 
pricing promotions has led to an increasing loss in basic cable subscribers. 
Consequently Rogers has focused on upgrades of its product offering to blunt 
these aggressive attacks. Rogers' investment to deploy a more robust Internet 
offering has resulted in the net addition growth of 73,000 high-speed internet 
subscribers in 2012 versus a loss of 83,000 basic cable subscribers. As such, 
the strong Internet growth and cable price increases more than offset cable 
subscriber loss resulting in operating revenue growth of 2% for 2012.

Rogers' strong focus on cost controls has also led to incremental margin 
expansion to support cash flow growth. Cost productivity enhancements have been 
driven by labor efficiencies, supplier-based opportunities and reduction in G&A 
expenses. In the wireless segment, other operating expenses (excluding retention
spending) decreased by 2% in 2012 while cable operating expenses remained flat 
year over year.

The US$1 billion debt issuance will help fund a portion of Rogers' expected cash
requirements during the next 12-18 months. In 2013, this includes maturities of 
US$350 million plus associated debt derivatives, an aggregate CAD700 million 
related to the Shaw transaction primarily in 2013, and a potential bid in the 
upcoming 700 MHz spectrum auction. Fitch estimates that the company could spend 
in the range of CAD500 million to CAD1 billion on the auction depending on 
several factors. 

An auction spectrum cap limits large wireless service providers to 1 of the 4 
prime paired spectrum blocks and 2 of the 5 total paired blocks. The unpaired 
lower blocks D and E are not subject to spectrum cap. Rogers may have an 
interest in bidding on the unpaired blocks leveraging AT&T Wireless' plan to use
carrier aggregation technology within those spectrum blocks. In 2014, Rogers has
US$1.1 billion of debt maturing plus associated debt derivatives. 

Rogers is well positioned from a liquidity perspective to support these cash 
requirements as evidenced by its free cash flow (FCF) generation, cash, and 
availability under its committed facilities. Rogers CAD2 billion credit facility
that matures in July 2017 was undrawn at the end of 2012. Cash was $213 million 
as of Dec. 31, 2012. In addition, Rogers entered into a CAD900 million accounts 
receivable securitization program that expires in December 2015. Rogers took a 
CAD400 million initial draw in January 2013. 

FCF for 2012 was approximately CAD612 million after Fitch adjustments including 
CAD803 million in dividends. Fitch's FCF expectations for 2013 are lower than 
2012, in the range of CAD400 million to CAD450 million primarily due to expected
increases for cash taxes of approximately CAD300 million and capital spending of
approximately CAD60 million. Rogers estimates its pension contribution for 2013 
at CAD96 million, a CAD11 million increase from 2012. Rogers' pension plan 
obligations were funded at a 71% level. As such, Fitch believes the company has 
sufficient flexibility to fund its pension deficit with existing cash flows. 

Accordingly, including the lower end of FCF expectations for 2013, Rogers should
have at least CAD2 billion in cash and CAD2.5 billion in undrawn availability to
address its strategic objectives. The company will also continue to focus excess
capital on its shareholders, since Rogers is within its targeted leverage range.
However, Fitch expects future shareholder-friendly initiatives will be 
materially less than the average of CAD2 billion spent during 2009 to 2011. In 
2012, Rogers returned approximately CAD1.3 billion via share repurchases and 
dividends. Rogers renewed its normal course issuer bid for 2013 to repurchase up
to CAD500 million of its shares, down from CAD1 billion in the previous 
authorization. 

Rogers maintains an aggressive dividend policy and payout ratio. The company 
increased its annual dividend for 2013 by 10% to CAD1.74 per share. 
Consequently, Rogers' growing dividend consumes a larger portion of its cash 
generation in light of its dividend payout ratio, which has increased from 21% 
in 2007 to 57% in 2012. Fitch expects Rogers will pace share repurchases with 
any excess cash, consistent with its current financial policies of net leverage 
below 2.5x.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to 
positive rating include:

--Commitment to leverage target less than 2.0x; 

--Stable operating profile that will not materially decline in the face of IPTV 
and wireless competition. 

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 drives 
sustained net leverage beyond 2.5x without a sound de-leveraging plan. 

 (Caryn Trokie, New York Ratings Unit)
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