DBRS Places Bell Canada’s Ratings UR-Pos, Maintains BCE Inc.’s Ratings UR-Dev and Withdraws BCE Acquisition Inc.’s Ratings

DBRS has today placed its ratings of Bell Canada Under Review with Positive Implications and maintained its ratings of BCE Inc. (BCE or the Company) Under Review with Developing Implications. Additionally, DBRS has withdrawn its ratings of BCE Acquisition Inc.

These actions follow BCE’s announcement today that it had received notice from the Purchaser purporting to terminate the Definitive Agreement to privatize BCE as dated June 30, 2007, as amended. While BCE has concluded this notice was delivered prematurely, BCE will be terminating its Definitive Agreement in accordance with its terms. Therefore, the $52 billion privatization (enterprise value) of BCE will not proceed today as planned. In particular, BCE noted that, as previously announced, a condition of closing the privatization was not met. Specifically, KPMG confirmed that it would not be able to deliver an opinion that BCE would meet, post-transaction, the solvency tests set out in the Definitive Agreement.

DBRS’s review will focus on a re-evaluation of the credit profiles of BCE and Bell Canada. This will include the current business and financial risk profile of Bell Canada and any expected changes to these factors in the near to medium term now that the privatization of its parent, BCE, is not proceeding. This review will include DBRS’s view of the potential for further events over the near term.

In addition to the above, BCE announced that the BCE board will immediately following the termination of its Definitive Agreement address (1) a reinstatement of its common dividend (beginning with declaring its Q4 2008 dividend payable January 15, 2009) and (2) a return of capital to its shareholders through a normal course issuer bid (NCIB). DBRS was largely anticipating the reinstatement of its common dividend, although it is difficult to qualify the magnitude of its NCIB at this stage.

Should there be no significant changes in strategy, business mix or Bell Canada’s capital structure, DBRS believe its ratings could be moved to the A (low) to “A” range given its businesses that generate strong EBITDA margins (at or above 40%) and reasonable leverage with gross debt-to-EBITDA at 2.0 times or below. Concurrently, DBRS plans to remove its recovery ratings on Bell Canada, which will no longer apply. The long-term debt rating of Bell Canada is expected to serve as a reference for BCE’s long-term rating, which could be either one notch lower than Bell Canada’s due to structural subordination or possibly the same.

DBRS notes that the privatization of BCE for $42.75 per common share (equity value of approximately $35 billion) was originally announced on June 30, 2007, and led by Teachers Private Capital, the private investment arm of Ontario Teachers’ Pension Plan, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC. Subsequently, Merrill Lynch took up an equity commitment as a principal investor. The privatization, as per its amended purchase and financing agreements dated July 4, 2008, was scheduled to close on December 11, 2008.

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

The applicable methodologies are Telecommunications and Wireless, which can be found on our website under Methodologies.

This is a Corporate rating.