|[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
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)
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.
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
Rating Telecom Companies
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