DBRS Confirms Rogers Communications Inc. at BBB, Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the Senior Unsecured Notes rating of Rogers Communications Inc. (Rogers or the Company) at BBB with Stable trends. The confirmation reflects Rogers’ improving subscriber metrics and deleveraging efforts. Additionally, the ratings are supported by the Company’s role as a leading wireless and cable television (TV) operator in Canada, increasing revenue diversification and its sound free cash-generating capacity. The ratings also consider intensifying competition, risks associated with regulatory change and evolving consumer habits that negatively affect the cable TV and telephony businesses.

Consolidated revenues rose to $13.6 billion in the last 12 months (LTM) ended Q3 2016 compared with $12.9 billion in 2014, driven by solid gains in wireless, broadband Internet and sports-related revenues. Notably, wireless subscriber metrics have rebounded in recent quarters despite intensifying competition, supported by differentiated content enhancements as well as improved network quality and customer care. While top-line growth has been sound, profitability has been challenged in the wireless and cable TV segments because of increased subsidies and competitive pressures. Adjusted EBITDA was $5.0 billion for the LTM ended Q3 2016, which was relatively unchanged from 2014 levels. The Company applied free cash flow toward debt reduction through the first nine months of 2016. As such, total debt was $17.0 billion as of September 30, 2016, compared with $17.7 billion at YE2015, improving credit metrics to gross debt-to-EBITDA of 3.40 times (x), EBITDA interest coverage of 6.55x and cash flow-to-debt of 24% in the LTM ended Q3 2016 period compared with 3.55x, 6.54x and 23%, respectively, at YE2015.

DBRS expects Rogers’ earnings profile to remain stable as growth in operating income should remain challenged, despite continued growth in revenue over the near term. DBRS forecasts revenues to range between $14.0 billion and $14.1 billion by 2017, supported by continued momentum in wireless and Internet services as well as growth in sports-related revenues, which should offset expected declines in cable TV and telephony revenues. DBRS expects adjusted EBITDA margins to decline to the high-36% range by 2017, owing to competitive pressures driving higher subsidies as well as customer-loading and retention costs. As such, adjusted EBITDA should range between $5.0 billion and $5.1 billion in 2017. DBRS believes that the risks of continued successful execution of the Rogers 3.0 strategy could be heightened with recent changes in company management.

Rogers’ financial profile is expected to improve within the current rating category over the medium term. Cash flow from operations should track operating income, rising to roughly $4.1 billion by 2017. Capital spending is expected to decline modestly to roughly $2.3 billion and cash dividend payments should remain stable through 2017, reflective of recent actions taken to suspend divided increases to preserve capital to repay debt. As such, DBRS forecasts that Rogers should generate between $600 million and $800 million of free cash flow before changes in working capital in 2017, the majority of which is expected to be directed toward deleveraging. This should improve credit metrics and keep the Company well positioned within the current rating category. DBRS notes that Rogers has a stated financial leverage target of net debt-to-EBITDA of 2.5x; however, its ratings do not rely on deleveraging to this target.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.