DBRS Comments on Rogers Communications’ Announced Purchase of Mobilicity

DBRS Limited (DBRS) today notes that Rogers Communications (Rogers; rated BBB with a Stable trend) entered into an agreement to purchase all of the outstanding shares of Mobilicity for $440 million, following approval from Industry Canada and pending approval from the Competition Bureau. As part of the transaction, Rogers will acquire Mobilicity’s 150,000 wireless subscribers and spectrum licences in Ontario, Alberta and British Columbia. In a separate transaction, Rogers is completing the previously announced acquisition of Shaw Communications Inc.’s (Shaw; rated BBB, Stable trend) AWS-1 spectrum for $100 million, in addition to the down payments made when the agreement was originally announced in January 2013.

Following the close of the transactions, Rogers and WIND Mobile (WIND) will undertake an AWS-1 spectrum swap in Southern Ontario to create contiguous spectrum for Rogers. Rogers will also divest some of its non-contiguous AWS-1 spectrum to WIND in Western Canada and Ontario.

DBRS expects that the $440 million purchase price and the $100 million payment to Shaw will likely be financed with cash on hand and debt. As a result, DBRS believes that gross debt-to-EBITDA would increase modestly, to 3.3 times (x) from 3.2x previously. DBRS notes that as part of the transactions, Rogers will receive tax loss carry forwards valued at approximately $175 million. Despite the small increase in leverage, DBRS views the transactions as positive for Rogers because of the operational benefits provided by the contiguous blocks of spectrum gained in three key regions: British Columbia, Alberta and Southern Ontario. Furthermore, DBRS’s BBB rating does not rely on Rogers to de-lever to its previously stated target range of 2.0x to 2.5x net debt-to-EBITDA.

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

The applicable methodologies are Rating Companies in the Communications Industry, Rating Companies in the Publishing Industry, Rating Companies in the Radio Broadcasting Industry and Rating Companies in the Television Broadcasting Industry, which can be found on our website under Methodologies.