Morningstar DBRS Confirms Rogers Communications Inc. Issuer Rating at BBB (low), Changes Trend to Positive From Stable

DBRS Limited (Morningstar DBRS) confirmed Rogers Communications Inc.'s (Rogers or the Company) Issuer Rating and Senior Unsecured Notes rating at BBB (low) and Subordinated Notes rating at BB. All trends have changed to Positive from Stable.

KEY CREDIT RATING CONSIDERATIONS
On April 4, 2025, Rogers announced that it has entered into a definitive agreement with Blackstone Corp. (Blackstone), a global alternative asset investment manager, in which Blackstone will acquire a 49.9% minority equity interest in a new Canadian subsidiary of Rogers that will own a minor part of Rogers' wireless network (the Subsidiary) for CAD 7.0 billion (the Transaction). Rogers will maintain operating and strategic control of the Subsidiary with a 50.1% equity interest and majority representation on the Subsidiary board of directors. Under the Transaction, the Subsidiary will pay a fee to Rogers for services related to operating and maintaining the network. As part of the Transaction, Rogers and the Subsidiary have entered into several agreements in which the Subsidiary provides backhaul services in exchange for potential distributions net of working capital, capital expenditures (capex), operating expenses, taxes, etc. necessary to operate the business. Rogers intends to use the net proceeds from the transaction primarily to reduce existing indebtedness.

Based on the terms of the Transaction, Morningstar DBRS is treating the Blackstone investment as a minority equity investment in the Subsidiary for the purposes of calculating credit metrics. The Subsidiary will generate revenue based on network data throughput and will fluctuate with user demand. Distributions by the Subsidiary will be at the full discretion of the Subsidiary board of directors but are subject to available cash and will be distributed pro rata based on ownership. As a result, the owners share in the variability and uncertainty of cash flows, which will affect the ultimate return on the Subsidiary.

The Transaction establishes an equity lock-up period through the first eight years. While Rogers has a time-limited repurchase period from the eighth anniversary until the 12th anniversary of the agreement, the repurchase option is subject to certain debt leverage ratio conditions during the redemption period. Morningstar DBRS expects that a decision to repurchase the Subsidiary would be purely economic given that Rogers maintains full operating control. Morningstar DBRS considers a 25-year service agreement to be consistent with other arms-length contractual relationships. Further, Blackstone's ability to transfer its ownership stake with terms no less favourable than would be available to Rogers (first right of refusal) suggests permeance of the Subsidiary structure within Rogers' operations.

Morningstar DBRS expects Rogers to consolidate the performance of the Subsidiary in its reported financial results and reflect Blackstone's minority interest in the Subsidiary as a minority interest expense. As such, Rogers' current indebtedness is expected to decline materially, thereby reducing Rogers' consolidated debt balance and interest expense. While Morningstar DBRS financial results will reflect Rogers' consolidated results, gross leverage metrics will reflect adjusted EBITDA (i.e., EBITDA less the minority interest impact of the Subsidiary) for calculation purposes.

With the Transaction, Rogers' credit profile has improved meaningfully and is supported by a solid 2024 operating performance that has benefitted in part from the Company's enhanced wireline network presence in Western Canada, as a result of the Shaw acquisition that closed in April 2023. The Positive trend reflects Morningstar DBRS' expectation of continued operating execution in line with its forecast, material de-levering associated with the Transaction, and the application of operating cash flow toward debt reduction in 2025 and 2026, and for the MLSE acquisition to be leverage neutral.

CREDIT RATING DRIVERS
Morningstar DBRS could take a positive rating action if Rogers continued to post operating results in line with expectations, and the financial profile continued to improve such that Morningstar DBRS' gross leverage moved sustainably below 4.0x.

Conversely, Morningstar DBRS could take a negative rating action if Rogers were to experience weaker-than-expected operating performance and/or if the Company were to pursue more aggressive financial management such that free cash flow was not directed to debt reduction or if acquisition activity were funded through the issuance of incremental debt, resulting in a delay in the deleveraging plan or leading to the expectation that leverage may be maintained structurally at current levels.

EARNINGS OUTLOOK
In 2024 Rogers reported consolidated revenue and EBITDA of $20.6 billion (+6.7% year over year (YOY)) and $9.6 billion (+12.1% YOY), respectively. Revenue growth reflected 12.4% YOY Cable revenue growth to $7.8 billion, largely reflecting one quarter of contribution from the Shaw acquisition that closed in April 2023 and Wireless revenue growth of 3.7% YOY to $10.6 billion, driven primarily by growth in the mobile subscriber base and an increase in bundled services. The 2024 EBITDA growth reflected 19.7% YOY growth in Cable EBITDA to $4.5 billion and 6.5% YOY growth to $5.3 billion in Wireless, as both divisions benefitted from a larger revenue base and the implementation of operating efficiencies. The 2024 EBITDA was essentially in line with Morningstar DBRS' forecast of $9.65 billion.

Morningstar DBRS expects Rogers' earnings profile to continue to strengthen through its forecast period as the Company continues to streamline the business and leverage its coast-to-coast wireless and wireline footprint through a wide range of bundling options that address all price points within the competitive landscape. Morningstar DBRS' forecast for 2025 incorporates Rogers' announced CAD 7.0 billion definitive agreement with Blackstone, which is expected to close in Q2 2025, and the mid-year closing of the CAD 4.7 billion MLSE acquisition. Morningstar DBRS forecasts consolidated revenue to increase in the mid-single-digit range in 2025 and 2026, based on low-single-digit growth in the legacy business and contribution from the MLSE transaction. EBITDA margins are forecasted to be marginally lower accounting for contribution from relatively lower margin MLSE business.

FINANCIAL OUTLOOK
Morningstar DBRS expects Rogers' financial profile to improve in 2025, owing primarily to the Transaction and the repayment of debt. Capex is expected to be approximately $3.9 billion, and dividends are forecast to be flat YOY. Reflecting growth in the legacy telecommunications business and lower interest expense and capex, which is partially offset by minority interest payments to Blackstone, 2025 free cash flow before changes in working capital is expected to be about $2.0 billion. Morningstar DBRS forecasts gross leverage to decline toward 4.0x in 2025.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBBH
Rogers' CBRA reflects the size and diversity of its customer base, the Company's status as a national incumbent telecommunications service provider, and the performance of its advanced 5G network. 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 and regulatory change.

Rogers' CFRA reflects Morningstar DBRS' expectation that, through EBITDA growth, the application of net proceeds from the Transaction, and no additional debt required to fund the CAD 4.7 billion MLSE transaction, gross debt-to-EBITDA should improve below 4.0x in 2026.

Intrinsic Assessment (IA): BBB
The IA is based on Rogers' CBRA and CFRA. Taking into consideration peer comparisons, among other factors, Morningstar DBRS places the IA in the lower end of the IA range given the continued uncertainty related to future events and the operating environment.

Additional Considerations: None

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Further details on the Company's Corporate Intrinsic Assessment Framework can be found at https://dbrs.morningstar.com/research/451508.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in Services Industries (February 03, 2025)
https://dbrs.morningstar.com/research/447184

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186 which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781

Morningstar DBRS Global Corporate Criteria (February 03, 2025)
https://dbrs.morningstar.com/research/447186

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/431153.

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@morningstar.com.

The credit rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

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 info-DBRS@morningstar.com.

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