DBRS Comments on TELUS Corporation

On June 14, 2013, DBRS confirmed the Issuer Rating and Notes rating of TELUS Corporation (TELUS or the Company), both at A (low), and its Commercial Paper rating at R-1 (low), as well as the Senior Debentures rating of TELUS Communications Inc. (TCI) at A (low). The trend on all ratings remains Stable. The rating confirmations reflected the Company’s strong operating results due to steady growth in wireless, as well as progress within its IP-based wireline services.

DBRS notes that on July 23, 2013, TELUS’s board of directors approved an increase to the company’s Normal Course Issuer Bid for the repurchase and cancellation of TELUS common shares to $1 billion for the period ending December 31, 2013.

TELUS’s previous intention was to repurchase up to $500 million of shares per year for the four-year period from 2013 to 2016. The current publicly stated financial policy of TELUS is to keep net debt-to-EBITDA in the 1.5 times (x) to 2.0x range (currently, approximately 1.7x). When confirming the ratings on June 14, 2013, DBRS stated that a material deterioration in credit metrics resulting from more aggressive than expected financial management could result in pressure on TELUS’s ratings.

Although the intended increase in share repurchases for 2013 does not in and of itself affect the current ratings, DBRS notes that a further increase in the share buyback program and/or a greater-than-anticipated investment in wireless spectrum, which would increase financial leverage, could result in a negative rating action.

Furthermore, DBRS feels that a strong fourth industry player could heighten competition, such that even more conservative financial management may be required for TELUS’s credit risk profile to remain commensurate with DBRS’s current assigned rating categories. DBRS will continue to carefully monitor the operating performance and financial management of TELUS, particularly in the context of an evolving competitive environment.

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

The applicable methodology is Rating Companies in the Communications Industry, which can be found on our website under Methodologies.