DBRS Confirms Quebecor Media’s Ratings at BB (low) & B (high), Trends Stable

DBRS has today confirmed the ratings of Quebecor Media Inc. (QMI or the Company) at BB (low) and B (high) for its secured bank debt and senior notes, respectively. The trends are Stable. DBRS has also confirmed the ratings of Vidéotron Ltée (Vidéotron) at BB, and changed the trend to Positive from Stable, and Sun Media Corporation (Sun Media) at BB with a Stable trend. (See separate press releases on Vidéotron and Sun Media.)

QMI’s ratings continue to be supported by its major operating subsidiaries, Vidéotron and Sun Media, which continue to perform solidly. (While DBRS has noted some EBITDA pressure in its rating update on Sun Media, this is expected to stabilize in 2007 with circulation erosion at The Toronto Sun generally mitigated and as plant upgrades are completed in 2007.)

DBRS notes that while Sun Media has generally been the major source of income for QMI in the past, Vidéotron now consistently pays a dividend that is more in-line with its proportion of QMI’s consolidated cash flow from operations. DBRS does note that the dividend from Vidéotron, in addition to its higher capex levels, has put Vidéotron into a negative free cash flow position. This, in addition to higher capex levels expected in 2007, is expected to require higher debt levels at Vidéotron. However, this should be mitigated in 2008 as capex levels are reduced and as Vidéotron continues to benefit from strong EBITDA growth as it further increases the penetration of its cable, Internet and telephone services.

DBRS notes that the dividends from Vidéotron and Sun Media continue to support QMI’s cash requirements that DBRS has estimated total roughly $250 million on an annual basis. While QMI has more than doubled its dividend to its parents over the past three years to $100 million for 2006 (including a $55 million special dividend), DBRS expects dividend growth to moderate going forward with growth more in-line with the group’s cash flow from operations. Furthermore, DBRS does not expect the recent suspension of the Quebecor World Inc. dividend to indirectly impact QMI as Quebecor World Inc.’s dividend is expected to remain stable and relatively modest at roughly $12 million per year.

DBRS notes that QMI also continues to have good liquidity with $100 million in an undrawn revolver, and a manageable debt maturity schedule with no principal maturities and only modest repayments of its credit facilities over the next three years. Furthermore, the Company has benefited from its refinancing in early 2006 that significantly reduced its average interest costs (from above 11% to roughly 7.5%).

Overall, DBRS believes that QMI can maintain its ratings based on the ongoing support of its strong and well-diversified operating subsidiaries. However, DBRS does caution that should competition intensify and cause pressure on Vidéotron and Sun Media’s operations, this would likely indirectly cause pressure on QMI’s credit profile and, therefore, its ratings.

Note:
All figures are in Canadian dollars unless otherwise noted.