DBRS Comments on BCE/Bell Canada’s Ratings – “A”/A (high) Given Recent Market Speculation

DBRS notes that current speculation surrounding BCE Inc. and Bell Canada (collectively BCE or the Company) in regards to a take-over or leveraged buyout currently has no current impact on BCE Inc.’s or Bell Canada’s current ratings of A (low) and “A”, respectively.

However, as the Company has denied any involvement or interest in any such takeover discussions, DBRS does believe that current speculation may increase the pressure on the Company and its management to take action to appease shareholders. Such action could lead to a change in the Company’s financial risk policy or the use of proceeds from its sale of Telesat Canada (Telesat).

As stated in a December 2006 press release, DBRS continues to be under the impression that the Telesat proceeds would be used in a balanced fashion, which would include some level of debt reduction (see separate press release dated December 12, 2006). However, DBRS notes that given the heightened uncertainty surrounding an event at BCE, the Company could look to use proceeds from the sale of Telesat to appease active shareholders and avoid an unsolicited takeover, a process which could be achieved through significant share repurchases.

Additionally, as part of this recent speculation, DBRS notes that the Company’s largest shareholder, Ontario Teachers’ Pension Plan Board (OTBP or Teachers), has recently changed its long-standing position from being a more passive shareholder to an active shareholder. This change could place further pressure on the Company and thereby heighten its event risk.

DBRS’s current expectations for BCE include the Company maintaining a stable and conservative balance sheet and the balanced deployment of the Telesat proceeds. Should the Company’s response to recent pressure be outside of DBRS’s expectations, DBRS may reconsider the appropriateness of the Company’s A (low)/“A” ratings.

However, DBRS currently expects that any changes in the Company’s financial policy as outlined above would likely result in one-notch rating change at BCE to BBB (high)/A (low).

DBRS notes this scenario does not factor in such events as a privatization or significant increase in leverage as any such event may not be precluded by this change in financial policy.

DBRS expects the Company to announce the use of proceeds from the sale of Telesat, or any other changes in its financial policy in the near term. In terms of an acquisition, merger or any other scenario, DBRS notes that the majority of the $10.1 billion in total debt that is held at BCE has no change of control provisions to protect bondholders from a debt-funded privatization.

DBRS notes that given the recent Industry Canada decision on local service forbearance, the Company has today applied for forbearance in its six largest cities. DBRS expects the regulator, the Canadian Radio-television and Telecommunications Commission, to rule on this application within 120 days subject to a number of wholesale service quality tests.

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