DBRS Confirms Shaw Communications Inc. Issuer Rating of BBB (low) with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Notes rating of Shaw Communications Inc. (Shaw or the Company) at BBB (low), and the Preferred Shares rating at Pfd-3 (low). All trends are Stable. The confirmations incorporate the divestiture of ViaWest Inc. (ViaWest), the announced sale of Shaw Tracking, the purchase of wireless spectrum licences from Quebecor Media Inc. (Quebecor) and the Company’s balanced allocation of capital. The ratings continue to reflect Shaw’s well-established brand and market position in Western Canada, high-quality network and wireless growth opportunity. The ratings also consider the intense competitive landscape, high capital intensity, high dividend payout and risks associated with regulatory change.

Shaw’s earnings profile, post the ViaWest and Shaw Tracking divestitures and acquisition of the wireless spectrum, remains supportive of the current credit rating. This view reflects a moderation of DBRS’s concerns over cable subscriber losses based on the Company’s recently improved results. Additionally, DBRS believes that the sale of ViaWest and the acquisition of the wireless spectrum licences represent a modestly positive impact on Shaw’s business outlook.

DBRS notes that the cumulative effect of the ViaWest and Shaw Tracking divestitures and the wireless spectrum acquisition reduces the Company’s leverage and enhances financial flexibility, resulting in an improvement in Shaw’s overall financial profile. However, the Company’s high capital intensity and dividend payout continued to result in negligible free cash flow and weigh on the overall credit risk profile.

DBRS believes Shaw’s earnings profile should remain relatively stable and supportive of the current rating over the near to medium term. DBRS believes that the Company will continue to be challenged by technological substitution, Internet protocol television competition and cord-shaving and/or cord cutting in favour of over-the-top services. In wireless, DBRS expects that additional capital investments (including spectrum licences) will be required for Freedom Mobile to compete effectively with the incumbents and that achieving sufficiently profitable growth will continue to entail material execution risk.

DBRS expects Shaw’s financial profile to remain relatively stable over the near to medium term. DBRS generally believes that a gross debt-to-EBITDA ratio between 2.5 times (x) and 3.0x would be sufficient for the Company to maintain an investment-grade rating. Although Shaw’s free cash flow profile is expected to remain near neutral, the Company has some slack in its leverage that would allow it to absorb additional debt.

Looking ahead, sustained subscriber erosion in the core cable business, which may result in weaker-than-expected operating performance, a longer-than-expected period of negative free cash flow and/or large debt-financed investments, would likely result in downward pressure on the ratings. Conversely, positive long-term trends in net cable subscriber activity, net wireless additions, improving wireless profit and a productive capital expenditure program (such that gross debt-to-EBITDA structurally improves to a range of 2.0x to 2.5x), could result in a positive rating action.

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 principal methodology is Rating Companies in Communications Industry, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.