Fitch Rates TELUS' Senior Unsecured Notes Offering 'BBB+'; Outlook Stable
CHICAGO -- April 2, 2014
Fitch Ratings has assigned a 'BBB+' rating to TELUS Corporation's (TSX: T,
NYSE: TU) offering of CAD500 million 3.2% senior 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 acquire spectrum and for general corporate
purposes. TELUS' Issuer Default Rating (IDR) is 'BBB+', and the Rating Outlook
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 three
principal national wireless operators in the Canadian market, and its leading
market position as a local wireline operator in Western Canada and Eastern
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 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 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
anticipated CAD500 million in stock repurchases in 2014. Fitch anticipates
TELUS' combined capital expenditures and stock repurchases in 2014 will only
be 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.
FCF and Capital Spending: In 2014, Fitch expects FCF (net cash from operating
activities less capital spending and dividends) to be in the CAD250 million to
CAD300 million range, down from CAD359 million in 2013. Although Fitch expects
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 acquisition of
spectrum in Canada's 700 MHZ auction supports TELUS' long-term credit profile;
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 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, although there was no commercial
paper outstanding as of Dec. 31, 2013. Consequently, the CAD2 billion
revolving facility had CAD2 billion in net availability.
The company's CAD500 million accounts receivable securitization program
matures in December 2016, and TELUS had CAD400 million outstanding on Dec. 31,
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 'BB' by a Canadian rating agency, though
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 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, New York, +1 212-908-0549
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