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TMCNet:  Fitch Affirms TELUS' IDR at 'BBB+'; Outlook Stable

[December 03, 2013]

Fitch Affirms TELUS' IDR at 'BBB+'; Outlook Stable

CHICAGO --(Business Wire)--

Fitch Ratings has affirmed the ratings for TELUS (News - Alert) Corporation (TSX: T, T.A., NYSE: TU) and its subsidiary as follows:

TELUS Corporation (TELUS)

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

--Senior unsecured notes at 'BBB+'.

TELUS Communications Inc (TCI)

--IDR at 'BBB+';

--Senior unsecured debentures at 'BBB+'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

STRONG POSITION IN A COMPETITIVE MARKET: TELUS Corporation's ratings reflect the stability of the company's diversified operations, its position as one of the three principal national wireless operators in the Canadian market, and its leading market position as a local wireline operator in Western Canada and Eastern Quebec.

GROWING WIRELESS AND WIRELINE DATA REVENUES: An important consideration in the rating is the strong performance of the wireless business, which continues to generate solid growth in revenues, EBITDA and simple FCF (EBITDA less capital spending). Improved wireline results are also supportive as TELUS has experienced consistent wireline revenue growth since 2011.

LEVERAGE: Fitch expects TELUS' leverage to approximate 1.8x at year-end 2013, up from 1.6x at year-end 2012. Debt has increased as CAD1 billion in stock repurchases in 2013 were only partly funded with FCF. Fitch believes continued moderate EBITDA growth will provide the company with the flexibility to manage net leverage within its 1.5x to 2.0x target range as it acquires spectrum in 2014 and repurchases stock. Through 2016, the company may repurchase up to CAD500 million of stock annually.

FCF AND CAPITAL SPENDING: In 2013, Fitch expects FCF (net cash from operating activities less capital spending and dividends) to be in the $350 million to $450 million range, down from $495 million in 2012. Although Fitch expects mid-single-digit revenue and EBITDA growth, FCF will be negatively affected by a rise in cash taxes to a range of $390 million to $440 million from $150 million in 2012. Capital spending is expected to register a slight increase in 2013 to approximately $2 billion from the $1.955 spent in 2012.

POTENTIAL FOR SPENDING ON (News - Alert) SPECTRUM: In Fitch's opinion, acquiring additional spectrum will be supportive of TELUS' long-term credit profile; however, there will be outlays for this key resource. In 2014, wireless spectrum auctions are expected to be held for two main spectrum bands -- 700 MHz and 2.5/2.6 GHz (the latter auction could be delayed until early 2015). The amount TELUS may spend is uncertain, but Fitch's expectations incorporate amounts similar to the nearly CAD900 million spent for spectrum in 2008 in the advanced wireless services (AWS) auction.

LIQUIDITY AND FINNCIAL FLEXIBILITY: TELUS' financial flexibility is good, owing to its undrawn revolver capacity, commercial paper program, and accounts receivable securitization program. TELUS maintains a CAD2 billion revolving credit facility maturing in November 2016. The financial ratio covenants in the credit facility include net debt to operating cash flow of less than 4x and operating cash flow to interest expense greater than 2x. The revolver backstops TELUS' commercial paper program, which had CAD205 million outstanding at Sept. 30, 2013. Consequently, the CAD2 billion revolving facility had CAD1.795 billion in net availability.


The company's CAD500 million accounts receivable securitization program matures in August 2014, and TELUS had CAD400 million outstanding on Sept. 30, 2013, remaining flat with the amount outstanding at the end of 2012. The program contains a trigger clause, which would unwind the program if TELUS Communications Inc. is rated below investment grade by a Canadian rating agency, though Fitch believes this is unlikely given its current rating level.

The next debt maturities are in 2015 and total $625 million.

RATING SENSITIVITIES

A positive rating action could occur if:

--The company committed to maintaining leverage at a level lower than anticipated, i.e. at the low end of its stated target range of 1.5x to 2.0x, along with continued strong wireless operating performance and stable wireline performance.

A negative rating action could occur if:

--Leverage exceeds 2.0x for a sustained period of time, for example, due to aggressive share repurchases;

--Higher than expected pressure on operating profits occurs through greater than anticipated competition in either of its lines of business.

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 - Effective from 8 August 2012 - 5 August 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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=810400

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.


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