Fitch Rates TELUS' Senior Unsecured Notes Offering 'BBB+'; Outlook Stable
CHICAGO -- November 21, 2013
Fitch Ratings has assigned a 'BBB+' rating to TELUS Corporation's (TSX: T,
NYSE: TU) offering of CAD400 million 3.6% senior unsecured notes due 2021 and
CAD400 million 5.15% senior unsecured notes due 2043. Proceeds will be applied
to the repayment of approximately CAD290 million of outstanding commercial
paper, and, if approved, $240 million (subject to closing adjustments) will be
applied to the acquisition of Public Mobile Inc. The remainder will be used
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 Corporation's 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
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 free cash flow (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 1.8x at year-end 2013,
up from 1.6x at year-end 2012. Debt has increased as CAD1 billion in stock
repurchases in 2013 were only 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 as it acquires spectrum in
2014 and repurchases stock. Through 2016, the company may repurchase up to
CAD500 million of stock annually.
FCF and Capital Spending: In 2013, Fitch expects FCF (net cash from operating
activities less capital spending and dividends) to be in the $350 million to
$450 million range, down from $495 million in 2012. Although Fitch expects
midsingle-digit revenue and EBITDA growth, FCF will be negatively affected by
a rise in cash taxes to a range of $390 million to $440 million from $150
million in 2012. Capital spending is expected to register a slight increase in
2013 to approximately $2 billion from the $1.955 spent in 2012.
Potential for Spending on Spectrum: In Fitch's opinion, acquiring additional
spectrum will be supportive of TELUS' long-term credit profile; however, there
will be outlays for this key resource. In 2014, wireless spectrum auctions are
expected to be held for two main spectrum bands - 700 MHz and 2.5/2.6 GHz (the
latter auction could be delayed until early 2015). The amount TELUS may spend
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.
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, which had CAD205 million
outstanding at Sept. 30, 2013. Consequently, the CAD2 billion revolving
facility had CAD1.795 billion in net availability.
The company's CAD500 million accounts receivable securitization program
matures in August 2014, and TELUS had CAD400 million outstanding on Sept. 30,
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 investment grade by a Canadian rating
agency, though Fitch believes this is unlikely given its current rating level.
As a result of the repayment of commercial paper outstanding by this offering,
there will be no debt maturities remaining through 2014. The next debt
maturities are in 2015 and total $625 million.
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
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.
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, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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, +1-212-908-0549
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