DBRS Confirms Shaw Communications Inc.’s Issuer Rating at 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 its Preferred Shares rating at Pfd-3 (low). All trends are Stable. The confirmations reflect better-than-expected subscriber growth in the Company’s wireless division, which mitigates DBRS’s concerns over subscriber losses in the core cable business, relatively low leverage and the Company’s balance 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 remains supportive of the current credit ratings. This view reflects Shaw’s operating performance, which witnessed significant wireless average revenue per user (ARPU) growth year over year and the commencement of the Total Business Transformation initiative that should enhance internal operating efficiencies and the customer experience and ultimately help drive future profitability.

Shaw’s financial profile continues to be well placed within the upper range of its rating category. DBRS notes that the Company continued to reduce leverage in F2018, which supports its solid ratings and provides additional financial flexibility. However, Shaw’s high level of capital intensity and material dividend payout continued to result in negligible free cash flow after dividends and weigh on the overall credit risk profile.

DBRS believes Shaw’s earnings profile should remain relatively stable and supportive of the current rating category over the near to medium term. The rollout of enhanced cable functionality, structural challenges, the popularity of over-the-top services and margin-focused bundling strategies are expected to pose headwinds for cable revenue generating unit additions. They do not, however, preclude Shaw from being able to deliver modest but profitable long-term growth in its Consumer division. Having said that, wireless growth in terms of users and ARPU have performed better than expected over the past year and mitigate softer operating performance in the Wireline segment.

DBRS expects Shaw’s financial profile to remain relatively stable over the near to medium term. DBRS continues to believe that a gross debt-to-EBITDA ratio between 2.5 times (x) and 3.0x would be enough for the Company to maintain its BBB (low) investment-grade ratings, which do not include any equity income or dividends received from Corus Entertainment Inc. (rated BB with a Stable trend by DBRS). Shaw’s free cash flow-to-debt will likely remain in the low single digits; however, with its F2018 year-end leverage at the low end (2.66x) of DBRS’s target range, Shaw has the capacity to absorb additional debt that may be required to enhance the competitive positioning of the wireless business.

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

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 under Related Documents or by contacting us at info@dbrs.com.

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

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.