March 27, 2013 / 6:26 PM / 4 years ago

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

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(The following statement was released by the rating agency) CHICAGO, March 27 (Fitch) Fitch Ratings has assigned a 'BBB+' rating to TELUS Corporation's (TSX: T, T.A., NYSE: TU) offering of CAD1.1 billion 3.35% senior unsecured notes due 2024 and CAD600 million 4.4% senior unsecured notes due 2043. Proceeds will be applied to the repayment of the CAD300 million 5.0% notes maturing June 2013, the repayment of outstanding commercial paper, the early repayment of CAD700 million 4.95% notes due May 2014 and for general corporate purposes. TELUS' Issuer Default Rating (IDR) is 'BBB+' and the Rating Outlook is Stable. KEY RATING DRIVERS 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. 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 free cash flow (FCF; EBITDA less capital spending). Improved wireline results are supportive of the rating as TELUS has experienced consistent wireline revenue growth since 2011. Growth has been in the low single digits as strong data and video revenues have been more than offsetting continued pressure on wireline voice revenues. Concerns include the continued competition from other wireless operators as well as ongoing pressure on wireline voice revenues. There is uncertainty regarding the costs to acquire additional spectrum in auctions to take place in 2013 and 2014. Auctions are expected to be held for two main spectrum bands, 700 MHz and 2.5/2.6 GHz, in 2013 and 2014, respectively. In 2013, the amount TELUS may spend on in the 700 MHz auction is uncertain but Fitch's expectations incorporate amounts similar to the nearly CAD900 million spent for spectrum in 2008 in the advanced wireless services (AWS) auction. Fitch expects TELUS' leverage to approximate 1.7x at year-end 2013, up from 1.6x at year-end 2012, owing to Fitch's assumption that TELUS will acquire spectrum in the 2013 auction. In Fitch's view, the company has sufficient financial flexibility to acquire spectrum in upcoming auctions without materially affecting its credit profile as long as bidding levels do not materially exceed the 2008 auction levels. 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, which had CAD245 million outstanding at Dec. 31, 2012. Consequently, the CAD2 billion revolving facility had CAD1.755 billion in net availability. The company's CAD500 million accounts receivable securitization program matures in August 2014, and TELUS had CAD400 million outstanding at the end of 2012, remaining flat with the amount outstanding at the end of 2011. The program contains a trigger clause, which would unwind the program if TELUS Communications Inc. is rated below investment grade by a Canadian rating agency, though Fitch believes this is unlikely given its current rating level. Fitch estimates FCF (cash from operating activities less capital spending and dividends) will be in the CAD300 million to CAD400 million range in 2013. TELUS' capital spending is expected to be flat relative to the CAD1.95 billion recorded in 2012. Balance sheet cash and temporary investments amounted to CAD107 million as of Dec. 31, 2012. As a result of the offering, there will be no material debt maturities in 2013 or 2014 as the proceeds will be used to repay outstanding commercial paper and the long-term maturities of CAD300 million due in 2013 and CAD700 million due 2014. 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. A negative rating action could occur if: --Leverage exceeds 2.0x for a sustained period of time, for example, due to aggressive share repurchases; --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 ''. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); --'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012). Applicable Criteria and Related Research Corporate Rating Methodology here Rating Telecom Companies here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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