News Column

Fitch Affirms Rogers Communications at 'BBB+'; Outlook Revised to Negative

February 24, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings for Rogers Communications Inc. (Rogers) as follows:

--Issuer Default Rating (IDR) at 'BBB+';

--Senior unsecured notes at 'BBB+'.

The Rating Outlook on the IDR has been revised to Negative from Stable.

The Rating Outlook revision to Negative is reflective of the increase in near-term financial risk associated with Rogers' $3.3 billion spectrum acquisition in the recent 700 MHz spectrum auction. Notably, Fitch acknowledges the strategic importance and several longer-term advantages of this highly valuable spectrum that Rogers paid C4.32 per MHz/POP in its major markets. The amount is similar to prices paid in the U.S. for 700 MHz spectrum during past transactions.

Rogers should realize significant long-term benefits by aggregating the contiguous 700 MHz spectrum blocks to deploy a 20 MHz channel with increased bandwidth, capacity and coverage capabilities that enhances network quality. Rogers' subscribers with existing LTE devices such as smartphones, tablets and dongles will have immediate access to take advantage of this new spectrum once deployed. The spectrum acquisition also allows Rogers to leverage the existing AT&T ecosystem for 700 MHz devices. Consequently, Fitch believes this strategic investment should strengthen Rogers' ability to monetize increased data usage over the longer-term to drive growth in cash flows.

However, the cash requirements around the spectrum acquisition were substantially above Fitch's expectations for the spectrum auction and will increase leverage beyond the current 'BBB+' rating category for an extended period of time. Fitch estimates leverage at the end of 2014 will be in the range of 2.9 times (x)-3.0x. As such, Rogers has limited flexibility within its current rating for operating shortfalls, material unexpected cash requirements from other initiatives or any additional leveraging events. Thus, Rogers must reduce leverage expeditiously to improve its financial risk profile. Fitch believes Rogers has sufficient capacity with current free cash flow (FCF) expectations to reduce leverage through debt reduction and EBITDA growth back within its range during the next two years.

KEY RATING DRIVERS

The ratings reflect Rogers' consistent operating performance during the past several years as its business segments have scaled further, both organically and through acquisitions, resulting in a higher level of profitability and cash flows. Rogers continued capital investment has enabled the company to deploy a high quality infrastructure in a timely manner with good diversity of service platforms to compete effectively against its mostly national peers. Accordingly, Rogers' wireless and cable operations underpin the significant leverage inherent in its operations that has led to stable credit measures.

Fitch believes Rogers' mix of cable and wireless assets competitively positions the company and allows for significant revenue diversification through its robust bundled service offer. Rogers has also completed several strategic transactions in the past couple of years to secure rights for highly valued sports content. This mix of assets should allow Rogers to sustain cash generation, adjusted for cash taxes, over the longer term. As the cable and wireless segments further mature, Rogers will need to seek other avenues in emerging businesses to cultivate growth.

Financial Flexibility and Liquidity

Rogers' has significant cash requirements during 2014 of approximately CAD4.9 billion to address its strategic imperatives. This includes US$1.1 billion of debt maturing in early 2014, CAD3.3 billion associated with the spectrum auction and about CAD500 million in cash related to a couple smaller transactions.

Rogers' current liquidity includes CAD2.3 billion of cash and full availability under its CAD2 billion credit facility that matures in July 2017. Additionally, Rogers' CAD900 million accounts receivable securitization program, expiring in December 2015 has CAD200 million of availability. Fitch's FCF expectations for Rogers in 2014 are similar to 2013 levels. As such, Fitch believes Rogers will need to seek increased liquidity either through additional bank lines or the capital markets.

Rogers has focused excess capital on its shareholders through its dividend and share repurchases as Rogers was within its targeted leverage range. In the past five years, Rogers returned to shareholders an average of CAD1.6 billion. Going forward, Fitch believes Rogers will refocus its financial policy to ensure sufficient financial flexibility for the anticipated debt reduction. As such, Fitch expects the company will substantially moderate future increases to the dividend and refrain from share repurchases.

During 2013, Rogers launched a nascent credit card operation, which if successful, could consume a material level of cash from operations beyond 2013. Fitch believes these operations could represent a higher level of risk. Rogers will need to prudently manage the credit card business with the appropriate internal controls to mitigate this increased risk. Fitch also does not expect material changes to the high level of capital spending given the competitive need to invest in the network.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead Fitch to affirm the ratings with a Stable Outlook include:

--For Rogers to take steps by executing on its deleveraging plan and making progress to return within its targeted leverage range as expected.

Negative: Future developments that may, individually or collectively, lead to negative rating include:

-- Discretionary actions by Rogers of adopting a more aggressive financial strategy or an event driven merger and acquisition activity, that increases sustained net leverage beyond 2.5x for an extended period of time beyond current expectations.

-- Weakened operating performance driven by competitive intrusions.

-- Material increase in shareholder based initiatives.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=821477

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Bill Densmore, +1-312-368-3125

Senior Director

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Secondary Analyst

David Peterson, +1-312-368-3177

Senior Director

or

Committee Chairperson

Michael Weaver, +1-312-368-3156

Managing Director

or

Media Relations

Brian Bertsch, New York, +1-212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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