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10 Apr 2000
MOODY'S RAISES RATINGS OF ROGERS COMMUNICATIONS TO Ba3 (SR. UNSECURED); ROGERS WIRELESS INC. (FORMERLY ROGERS CANTEL) AND ROGERS CANTEL MOBILE TO Baa3 (SR. SECURED); AND ROGERS CABLE INC. (FORMERLY ROGERS CABLESYSTEMS) TO Ba1 (SR. SECURED). ALSO CONTINUES
Moody's Investors Service upgraded Rogers Communications Inc.'s (RCI) ratings to Ba3 from B2 (senior unsecured); Rogers Wireless Inc. (formerly Rogers Cantel Mobile Inc.) (Wireless) to Baa3 from Ba3 (senior secured); and Rogers Cable Inc. (formerly Cablesystems Limited) (Cable) to Ba1 from Ba3 (senior secured). The ratings upgrades reflect the continuing improvements in the company's operations as well as recent strengthening of the company's balance sheet. The company has bolstered its balance sheet with equity and has experienced increased financial flexibility due to significant increases in the value of the company's non-core investments. The upgrade concludes the review of the Wireless ratings review, however, Moody's stated that it is maintaining the rating review for possible further upgrade of both RCI's and Cable's ratings pending the final outcome of RCI's agreement to merge with Videotron Ltee (Baa3 senior unsecured). Wireless' rating outlook is stable.
The upgrade of RCI's debt ratings reflects the strengthening operational performance and financial flexibility. It also is based on Moody's expectation that it will continue to improve over the near-to-intermediate-term as a result of strong cash flow in its wholly owned core cable and 51% owned wireless businesses. Rogers Media Inc., another RCI wholly owned subsidiary, is expected to provide a stable cashflow, though modest relative to RCI's debt. Rogers' credit metrics have improved dramatically over the past several years, from nearly 8.0 times debt-to-EBITDA in 1996 to about 4.0 times in 1999, on a consolidated basis. This has been accomplished through both stronger cash flow at the cable operations as new products are introduced and debt reduction resulting from the sale of Cantel stock to an AT&T/British Telecom joint venture for about Can$425 million and a Can$600 million preferred securities investment by Microsoft. The company's management has consistently affirmed its commitment to improve its credit standing, with a stated goal of attaining investment grade rating status. The rating upgrade reflects Moody's opinion that the company has come a long way in its efforts to achieve its goals and the expectation that credit improvement will continue. However, the rating upgrade for both RCI and Cable was tempered by the ongoing fight for control of Videotron. The continuing rating review will focus on the outcome of that fight and the possibility that RCI may choose to increase its offer for Videotron, including either a material cash component or a greater amount of stock repurchases. The company has announced its intention to repurchase up to Can$1 billion in stock, dependent upon both market conditions and a favorable closing of the Videtron offer.
The fair market value of Rogers' investments has grown significantly over the past several years to approximately Can$3 billion. Moody's believes that Rogers will continue to both make new investments over time and "harvest" existing portfolio assets to fund its initiatives, including funding capital expenditures in excess of free cashflow and to possibly repurchase some of its stock.
The ratings upgrade of Rogers Wireless Inc. reflects the company's status as the largest wireless communications company in Canada, the benefits that are imputed to it by its minority shareholders AT&T and British Telecom, its moderating financial leverage, and its improved operations and cost structure. With about 2.2 million subscribers and a near nationwide digital network covering 81% of the population, Wireless is poised to benefit, in terms of both increasing subscriber growth and operational economies of scale, from being Canada's only national digital cellular operator. Historically, the company has suffered as competition within the wireless space appeared as a result of PCS licence auctions by the government. The result was increased churn and stagnating subscriber growth. Management's attempts to reinvent itself through new marketing and pricing plans stumbled, until the company underwent a restructuring which essentially reduced costs. With a more competitive cost structure in place, and effective marketing of new price plans, subscriber growth returned to Wireless in 1999 as the strength of the company's dominant network became paramount. Also, in August 1999, AT&T and British Telecom together purchased a one-third interest in Wireless for Cdn$1.4 billion. The proceeds, shared by both Wireless and RCI, were used to reduce the company's high debt levels lowering Wireless's leverage ratio to under 3.5 times. The AT&T/BT investment reduced RCI's ownership stake in the company on a fully diluted basis to 51% (67% voting rights), but provides Wireless with access to deep pocketed global communications giants which should help the company to further reduce costs through economies of scale and to take advantage of their wireless innovations.
The upgrade of Cable debt ratings reflects its position as the largest cable operator in Canada, the growing cashflow opportunities surrounding robust new product offerings, and reducing levels of debt and leverage. The three largest cable operators in Canada - Rogers, Videotron, and Shaw - together represent about two-thirds of all Canadian cable subscribers and have largely established the regions they intend to focus on. The recently announced cable systems swaps with Shaw Communications Inc. and the proposed merger with Videotron, will make Rogers the dominant cable provider in Canada, controlling much of the eastern half and offering the opportunity of improved cost efficiencies and marketing effectiveness. Cable has been one of the leaders in rolling out new cable services, with over 185,000 high speed data and over 53,000 digital subscribers at the end of 1999. Moody's expects that Rogers should begin to see improved cash flow generation from these new initiatives over the intermediate term. Capital expenditures for system upgrades will likely peak in 2000, but begin to decline thereafter which should be reflected in improving debt protection measures.
Videotron and RCI executed a business combination agreement giving effect to the transaction. Each Videotron share will be exchanged for 0.925 of a Non-Voting Class B Share of RCI. The TVA Group Inc. broadcasting subsidiary holdings will be distributed to Videotron shareholders prior to the exchange. The transaction will result in an aggregate equity valuation of Videotron of approximately Can$5.6 billion. The combination, if completed, will result in the creation of North America's largest contiguous cluster of homes serviced by one integrated cable network. With over 5.1 million homes passed, 3.7 million cable customers, and 260,000 high-speed Internet access customers, the merged company will have estimated revenue and operating income, on a last quarter annualized basis, for fiscal 2000 of approximately $4.4 billion and $1.2 billion respectively, and be by far Canada's largest cable company and among the top three suppliers in North America in terms of high-speed Internet access.
The uncertainty regarding RCI's proposed merger with Le Groupe Videotron Ltee is due to Quebecor's hostile competing offer valued by Quebecor at Cdn$5.9 billion, nearly Cdn$300 million more than RCI's offer. While Videotron recently rejected the Quebecor offer, Moody's believes that the final winner will not be determined quickly and that the process could eventually be resolved through the Canadian courts. In concluding its review of RCI and Cablesystems, Moody's will assess the potential impact that a RCI victory would have on the credit metrics of the two companies which will be heavily influenced by the manner in which the acquisition is financed.
The ratings that were upgraded and remain on review for upgrade are:
Rogers Communications Inc. issuer rating upgraded to Ba3 from B2; senior unsecured debt upgraded to Ba3 from B2; senior implied rating upgraded to Ba2 from B1
Rogers Cable Inc. (formerly Rogers Cablesystems Ltd.) senior secured debt upgraded to Ba1 from Ba3; senior subordinated debt upgraded to Ba3 from B2;
The ratings that were upgraded are:
Rogers Wireless Inc. (formerly Rogers Cantel Mobile Communications Inc. and Rogers Cantel Inc.) senior secured debt upgraded to Baa3 from Ba3; senior subordinated debt upgraded to Ba2 from B2.
RCI, with its headquarters in Toronto, Canada, is a diversified public communications company with interests in cable television, mobile communications, publishing, and broadcasting. Rogers Cable Inc., wholly owned by RCI, is Canada's largest cable television company, and Rogers Wireless Inc., 51% equity owned by RCI with 33% owned by BT/AT&T, is Canada's largest wireless telephone company.
No Related Data.
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