Fitch Rates TELUS' Senior Unsecured Notes Offering 'BBB+'; Outlook Stable
CHICAGO -- March 27, 2013
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
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.
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
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Bill Densmore, +1-312-368-3125
Michael Weaver, +1-312-368-3156
Brian Bertsch, New York, +1 212-908-0549
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