Fitch Rates TELUS' Senior Unsecured Notes Offering 'BBB+'; Outlook Stable

Wed Apr 2, 2014 11:28am EDT

(The following statement was released by the rating agency) CHICAGO, April 02 (Fitch) Fitch Ratings has assigned a 'BBB+' rating to TELUS Corporation's (TSX: T, NYSE: TU) offering of CAD500 million 3.2% senior unsecured notes due 2021 and CAD500 million 4.85% senior unsecured notes due 2044. Proceeds will be used to repay short-term debt incurred to acquire spectrum and for general corporate purposes. TELUS' Issuer Default Rating (IDR) is 'BBB+', and the Rating Outlook is Stable. KEY RATING DRIVERS Strong Position in a Competitive Market: TELUS' ratings reflect the stability of the company's diversified operations, its position as one of the three principal national wireless operators in the Canadian market, and its leading market position as a local wireline operator in Western Canada and Eastern Quebec. Growing Wireless and Wireline Data Revenues: An important consideration in the rating is the strong performance of the wireless business, which continues to generate solid growth in revenues, EBITDA and simple FCF (EBITDA less capital spending). Improved wireline results are also supportive as TELUS has experienced consistent wireline revenue growth since 2011. Leverage: Fitch expects TELUS' leverage to approximate 2.0x at year-end 2014, up from 1.9x at year-end 2013. Debt is expected to rise owing to the acquisition of 700 MHz spectrum for CAD1.14 billion and as a result of an anticipated CAD500 million in stock repurchases in 2014. Fitch anticipates TELUS' combined capital expenditures and stock repurchases in 2014 will only be partly funded with FCF. Fitch believes continued moderate EBITDA growth will provide the company with the flexibility to manage net leverage within its 1.5x to 2.0x target range. FCF and Capital Spending: In 2014, Fitch expects FCF (net cash from operating activities less capital spending and dividends) to be in the CAD250 million to CAD300 million range, down from CAD359 million in 2013. Although Fitch expects midsingle-digit revenue and EBITDA growth, FCF will be negatively affected by a rise in cash taxes to a range of CAD540 million to CAD600 million from CAD438 million in 2013. Capital spending is expected to register a slight increase in 2014 to approximately CAD2.2 billion from the CAD2.11 billion spent in 2013. Potential for Spending on Spectrum: In Fitch's opinion, the acquisition of spectrum in Canada's 700 MHZ auction supports TELUS' long-term credit profile; however, the CAD1.14 billion outlay for this key resource will move leverage up to approximately 2.0x. In 2015, a wireless spectrum auction is expected to be held for spectrum in the 2.5/2.6 GHz frequency band, although Fitch believes the outlay for this band is likely to be modest. Liquidity and Financial Flexibility: TELUS' financial flexibility is good, owing to its undrawn revolver capacity, commercial paper program, and accounts receivable securitization program. TELUS maintains a CAD2 billion revolving credit facility maturing in November 2016. The financial ratio covenants in the credit facility include net debt to operating cash flow of less than 4x and operating cash flow to interest expense greater than 2x. The revolver backstops TELUS' commercial paper program, although there was no commercial paper outstanding as of Dec. 31, 2013. Consequently, the CAD2 billion revolving facility had CAD2 billion in net availability. The company's CAD500 million accounts receivable securitization program matures in December 2016, and TELUS had CAD400 million outstanding on Dec. 31, 2013, remaining flat with the amount outstanding at the end of 2012. The program contains a trigger clause, which would unwind the program if TELUS Communications Inc. is rated below 'BB' by a Canadian rating agency, though Fitch believes this is unlikely given its current rating level. There is no maturing debt in 2014, and the debt maturities for 2015 and 2016 amount to CAD625 million and CAD600 million, respectively. RATING SENSITIVITIES A positive rating action could occur if: --The company committed to maintaining leverage at a level lower than anticipated, i.e. at the low end of its stated target range of 1.5x to 2.0x, along with continued strong wireless operating performance and stable wireline performance. A negative rating action could occur if: --Leverage exceeds 2.0x for a sustained period of time, for example, due to aggressive share repurchases; --Higher than expected pressure on operating profits occurs through greater than anticipated competition in either of its lines of business. Contact: Primary Analyst John C. Culver, CFA Senior Director +1-312-368-3216 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Bill Densmore Senior Director +1-312-368-3125 Committee Chairperson Michael Weaver Managing Director +1-312-368-3156 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: Additional information is available at ''. 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 here Rating Telecom Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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