Fitch Rates TELUS' Senior Unsecured Notes Offering 'BBB+'; Outlook Stable
CHICAGO -- December 06, 2012
Fitch Ratings has assigned a 'BBB+' rating to TELUS Corporation's (TSX: T,
T.A., NYSE: TU) offering of CAD500 million 3.35% senior unsecured notes due
2023. Proceeds will be applied to the repayment of outstanding commercial
paper. TELUS' Issuer Default Rating (IDR) is 'BBB+' and the Rating Outlook is
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 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 wireless voice revenues. Overall, revenues
from the key growth areas of wireless and wireline data were approximately 80%
of consolidated revenues in the first nine months of 2012 and grew 8.4% over
the prior year.
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 2012 and remain
flat in 2013. 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. For the last 12 months (LTM) ended Sept. 30,
2012, leverage was approximately 1.64x, slightly lower than the 1.8x recorded
at year-end 2011.
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 CAD669 million outstanding at Sept. 30, 2012. Consequently,
the CAD2 billion revolving facility had CAD1.331 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
the third quarter 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 TCI 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 CAD400 million to CAD500 million range in 2012; in
2013 Fitch expects the level to decline slightly to the CAD300 million to
CAD400 million range. TELUS' capital spending for the LTM ended Sept. 30, 2012
approximates its guidance of CAD1.95 billion for 2012. Balance sheet cash and
temporary investments amounted to CAD45 million as of Sept. 30, 2012.
Near-term debt maturities consist of approximately CAD669 million of
commercial paper, and long-term maturities of CAD300 million due in 2013 and
CAD700 million due 2014.
WHAT COULD TRIGGER A RATING ACTION
A positive rating action could occur if:
--The company committed to maintaining leverage at a level lower than
anticipated, that is, 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 results through greater than anticipated competition
in either of its lines of business.
Additional information is available at www.fitchratings.com. 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
Rating Telecom Companies
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John C. Culver, CFA, +1-312-368-3216
70 W. Madison Street
Chicago, IL 60602
Bill Densmore, +1-312-368-3125
Michael Weaver, +1-312-368-3156
Brian Bertsch, +1-212-908-0549
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