DBRS Morningstar Maintains Rogers Communications Inc.’ s Ratings Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) maintained the Under Review with Negative Implications status of Rogers Communications Inc.’s (Rogers or the Company) Issuer Rating and Senior Unsecured Notes rating, both rated BBB (high). The Issuer Rating and Senior Unsecured Notes rating were placed Under Review following the March 15, 2021, announcement of an agreement to combine Rogers with Shaw Communications Inc. (Shaw; rated BBB and Under Review with Developing Implications by DBRS Morningstar) in a $26 billion transaction (including the assumption of approximately $6 billion of Shaw’s debt; the Transaction). For details of the initially proposed Transaction, please see the DBRS Morningstar press release “DBRS Morningstar Places Rogers Communications Inc.’ s Ratings Under Review with Negative Implications Following Announcement of Potential Acquisition of Shaw Communications Inc.” dated March 16, 2021.

Shaw shareholders voted to approve the Transaction at a special shareholders meeting held on May 20, 2021. The court-approved plan of arrangement for the implementation of the Transaction under the Business Corporations Act (Alberta) was approved on May 25, 2021. The Transaction is subject to customary closing requirements including the receipt of three key regulatory approvals under the Broadcasting Act (Canada), the Competition Act (Canada), and the Radiocommunication Act (Canada). The closing of the Transaction is subject to a series of approvals, including the three key regulatory considerations, and is expected to close by the first half of 2022.

The Under Review with Negative Implications status reflects DBRS Morningstar’s view that while Rogers’ business profile should benefit from increased scale, an enlarged geographic footprint, and enhanced spectrum license portfolio and potential cost synergies, the benefits do not completely offset the risks associated with the initial increase in financial leverage as lease-adjusted debt-to-EBITDA may increase above 5.0 times on an unadjusted basis, potential integration risks, and the ability and pace of the organization to de-lever post-close.

In its March 16, 2021, press release DBRS Morningstar noted that based on the merit of the Transaction, the Company should be able to maintain an investment-grade rating even without significant deleveraging post-close; however, a negative rating action could be limited to one notch based on the business benefits, and the Company’s ability and willingness to deleverage toward its stated intention within a two- to three-year time frame. DBRS Morningstar will proceed with its review as more information becomes available and aims to resolve the Under Review with Negative Implications status by the closing of the Transaction.

In its review, DBRS Morningstar will focus on (1) assessing the business risk profile of the combined entity, as well as the risks associated with integration and realization of synergy potential; (2) Rogers’ financial risk profile on a pro forma basis, including free cash flow-generating capacity of the combined entity; and (3) the Company’s longer-term business strategy and financial management intentions going forward.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating Companies in the Communications Industry (July 27, 2021; https://www.dbrsmorningstar.com/research/382119), DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (October 29, 2021; https://www.dbrsmorningstar.com/research/386615), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021; https://www.dbrsmorningstar.com/research/379424), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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