(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%
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
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
national wireless operators in the Canadian market, and its
position as a local wireline operator in Western Canada and
Growing Wireless and Wireline Data Revenues: An important
consideration in the
rating is the strong performance of the wireless business, which
generate solid growth in revenues, EBITDA and simple FCF (EBITDA
spending). Improved wireline results are also supportive as
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
million in stock repurchases in 2014. Fitch anticipates TELUS'
expenditures and stock repurchases in 2014 will only be partly
funded with FCF.
Fitch believes continued moderate EBITDA growth will provide the
the flexibility to manage net leverage within its 1.5x to 2.0x
FCF and Capital Spending: In 2014, Fitch expects FCF (net cash
activities less capital spending and dividends) to be in the
CAD250 million to
CAD300 million range, down from CAD359 million in 2013. Although
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
spectrum in Canada's 700 MHZ auction supports TELUS' long-term
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
receivable securitization program. TELUS maintains a CAD2
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
TELUS' commercial paper program, although there was no
outstanding as of Dec. 31, 2013. Consequently, the CAD2 billion
facility had CAD2 billion in net availability.
The company's CAD500 million accounts receivable securitization
in December 2016, and TELUS had CAD400 million outstanding on
Dec. 31, 2013,
remaining flat with the amount outstanding at the end of 2012.
contains a trigger clause, which would unwind the program if
Communications Inc. is rated below 'BB' by a Canadian rating
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.
A positive rating action could occur if:
--The company committed to maintaining leverage at a level lower
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
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.
John C. Culver, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
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,
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and
Rating Telecom Companies
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