Morningstar DBRS Confirms Rogers Communications Inc.’s Credit Ratings at BBB (low) with Stable Trends

DBRS Limited (Morningstar DBRS) confirmed both the Issuer Rating of Rogers Communications Inc. (Rogers or the Company) and the Company’s Senior Unsecured Notes rating at BBB (low). All trends remain Stable.

KEY CREDIT RATING CONSIDERATIONS
The rating confirmations and Stable trends primarily reflect four factors: (1) the Company’s solid 2023 overall operating results including the Shaw acquisition, which closed on April 3, 2023; (2) the industry-leading growth in net 2023 prepaid wireless subscribers, including very strong Q4 2024 results; (3) the rapid realization of cost synergies related to the Shaw acquisition that are trending ahead of schedule; and (4) YE2023 leverage that was roughly a half-turn lower than Morningstar DBRS initially expected. The Stable trends incorporate the continued realization of cost synergies in 2024 such that EBITDA grows faster than revenue, resulting in material operating leverage over the near to medium term. Capital intensity is expected to remain higher than the Company’s mid-teens percent historical average, but begin to moderate into the high teens beginning in 2024, while dividend payments are forecast to remain roughly flat during the near to medium term.

RATING DRIVERS
In Morningstar DBRS’ opinion, Rogers’ credit profile has improved meaningfully within the current rating category since the Shaw acquisition. Although leverage currently remains above the threshold normally associated with a BBB credit rating, the Company has taken and/or announced numerous credit-positive initiatives in order to achieve its stated medium-term target of reducing net leverage below 3.0 times (x) by YE2025. Morningstar DBRS could take a positive rating action if Rogers were able to leverage its expanded national footprint to drive EBITDA growth and/or reduce debt such that gross leverage is sustainably maintained between 3.5x and 4.0x.

Conversely, Morningstar DBRS could take a negative rating action if Rogers were to experience a weakened operating performance that fell materially below Morningstar DBRS’ current forecast and/or if the Company were to pursue more aggressive financial management such that free cash flow was not directed to debt reduction, resulting in a delay in the deleveraging plan or leading to the expectation that leverage would be maintained structurally at current levels.

EARNINGS OUTLOOK
Morningstar DBRS expects Rogers’ earnings profile to continue to strengthen, reflecting growth in the cable business, particularly in the Alberta and BC markets; the industry-leading loading of 674,000 net new postpaid subscribers in addition to the migration of approximately 450,000 postpaid mobile phone subscribers as a result of the Shaw acquisition; the consolidation of wireless and residential service offerings in the retail channel; and the accelerated realization of cost synergies, totalling $375 million as of YE2023, that are expected to increase to an annual run rate of approximately $1.0 billion by YE2024 or early 2025. Morningstar DBRS forecasts Rogers 2024 revenue to increase in the mid-to-high single digits with growth in the mid-single digit range in 2025, and for the Company to achieve positive EBITDA margin leverage year over year in 2024 and 2025.

FINANCIAL OUTLOOK
Morningstar DBRS expects Rogers’ financial profile to continue to improve in 2024, reflecting growth in EBITDA and an estimated $1.5 to $2.0 billion in free cash flow (after capital expenditures and dividends but before working capital) expected to be used for debt repayment, modest anticipated spectrum license costs, and the ongoing sale of non-core assets, the proceeds of which are expected to be used for additional debt repayment. Morningstar DBRS forecasts gross leverage to decline by roughly a half-turn in both 2024 and 2025, thereby ending 2025 at approximately 4.0x.

CREDIT RATING RATIONALE
Rogers’ credit ratings reflect the size and diversity of its customer base, which contributes to the stability and predictability of the Company’s cash flows. Rogers is the incumbent cable provider in Ontario and the Maritimes and, with the Shaw acquisition, has expanded its cable footprint nationally, with Alberta and BC now representing the Company’s two fastest-growing markets. Rogers’ expanded wireline footprint enables it to better leverage its national wireless presence and compete more effectively in Western Canada with a bundled service offering. The Company has roughly 11.6 million mobile subscribers (10.5 million postpaid and 1.1 million prepaid), 2.8 million video subscribers, 4.2 million high-speed Internet subscribers, and 1.6 million telephony subscribers.

The Company has also invested heavily in its telecommunications networks, spending roughly $15.0 billion since 2019, including a record $4.0 billion in 2023. This represents an average capital intensity of 18.9% since 2019 and more than 20% in the last two years. As a result of the Company’s network investment it offers coast-to-coast 5G wireless access and Morningstar DBRS expects Rogers to announce its 10G and DOCSIS 4.0 Internet rollout timeline in 2024.

The credit ratings also reflect intensifying competition, the expected loss of legacy wireline services revenues, higher near- to medium-term network investment spending, and the risks associated with technological change.

Morningstar DBRS notes that operations are subject to a relatively high degree of regulation by the Canadian Radio-television and Telecommunications Commission; Innovation, Science and Economic Development Canada (formerly Industry Canada); and the Competition Bureau Canada, all of which are focused on keeping the Canadian communications landscape competitive.

TRANSACTION-SPECIFIC DISCLOSURES
This disclosure includes any financial statement adjustments that deviate materially from those contained in the Issuer’s published financial statements.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Rogers, the relative weighting of the BRA factors was approximately equal.

(B) Weighting of FRA Factors
In the analysis of Rogers, the relative weighting of the FRA factors was approximately equal.

(C) Weighting of the BRA and the FRA
In the analysis of Rogers, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Communications Industry (July 20, 2023), https://dbrs.morningstar.com/research/417420

The following methodologies have also been applied:
-- DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 19, 2023), https://dbrs.morningstar.com/research/422134
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023), https://dbrs.morningstar.com/research/411694

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/397223.

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 credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at [email protected].

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