DBRS Confirms Télébec, L.P. and NorthernTel, L.P. at BBB (high) with Stable Trends

DBRS has today confirmed the Debentures ratings of Télébec, Limited Partnership (Télébec) and of NorthernTel, Limited Partnership (NorthernTel), collectively, the Partnerships, at BBB (high) with Stable trends.

The ratings are supported by the Partnerships’ incumbent market positions in many regional telecommunications markets of rural Ontario and rural Québec. The Partnerships have sustained EBITDA margins just below the 50% level despite relatively stagnant growth in local service revenues and declining long-distance revenues. Although the Partnerships continue to benefit from less competition on local wire-line service due to the high-cost service area and the low population density, which make their regions less attractive to competitors, DBRS notes that the Partnerships have maintained profitability levels while growing wireless and broadband subscribers in a competitive environment. Such EBITDA margins translate into significant free cash flow generation, which supports its credit profile. The Partnerships’ ratings also reflect conservative capital structures that carry modest debt levels.

DBRS notes that the Partnerships’ ratings are likely capped at the BBB (high) level as both Télébec and NorthernTel face limitations on growth due to their limited population base and presence in primarily lower-growth economic regions.

DBRS does, however, acknowledge the competitive threat to its local wire-line franchise presented by cable operators offering telephony services in parts of the Partnerships’ footprints. This may result in both Télébec and NorthernTel being forced to reconfigure their service offerings in some areas in order to compete with lower-priced product bundles that have shown to be successful in other markets.