DBRS Limited (DBRS Morningstar) maintained the Under Review with Negative Implications status of Rogers Communications Inc.’s (Rogers or the Company) Issuer Rating and Senior Unsecured Notes rating, both rated BBB (high). The Issuer Rating and Senior Unsecured Notes rating were placed Under Review following the March 15, 2021, announcement of an agreement to combine Rogers with Shaw Communications Inc. (Shaw; rated BBB and Under Review with Developing Implications by DBRS Morningstar) in a $26 billion transaction that includes the assumption of approximately $6 billion of Shaw’s debt (the Transaction). For details of the initially proposed Transaction, please see the DBRS Morningstar press release “DBRS Morningstar Places Rogers Communications Inc.’s Ratings Under Review with Negative Implications Following Announcement of Potential Acquisition of Shaw Communications Inc.” dated March 16, 2021.
While Shaw shareholders’ approval of the Transaction and a court-approved plan of arrangement for the implementation of the Transaction under the Business Corporations Act (Alberta) were gained in 2021, approvals of additional closing conditions were obtained through 2022 and year-to-date 2023. On March 24, 2022, the Canadian Radio-television and Communications Commission (CRTC) approved the transfer of Shaw’s broadcasting services. On August 12, 2022, Rogers announced a definitive agreement to sell Shaw’s wireless business, Freedom Mobile Inc. (Freedom), to Quebecor Inc., conditional on, among other items, the completion of the Transaction with Shaw. On December 30, 2022, the Competition Tribunal released its decision that Shaw’s agreement to sell its subsidiary Freedom to Quebecor-owned Vidéotron Ltée (Vidéotron) prior to the closing of the sale to Rogers ensured that competition would not be lessened substantially, thereby dismissing the Competition Bureau’s application to block the Transaction. After an appeal of the Tribunal’s decision, on January 24, 2023, the Federal Court of Appeals dismissed the Competition Bureau’s appeal and upheld the Competition Tribunal’s decision. Subsequently, the Competition Bureau announced that it would not proceed with any further legal challenges to the Transaction after their appeal was dismissed. Looking ahead, the Transaction requires approval from the Minister of Innovation, Science and Economic Development Canada (ISED) for the proposed transfer of Freedom’s spectrum licences to Vidéotron. While the timing of the ISED decision is unknown, Rogers, Shaw, and Quebecor have agreed to extend the outside date of the merger until March 31, 2023.
The Under Review with Negative Implications status reflects DBRS Morningstar’s view that, while Rogers’ business profile should benefit from increased scale, an enlarged geographic footprint, and enhanced spectrum license portfolio and potential cost synergies, the benefits do not completely offset risks associated with the initial increase in financial leverage (as lease-adjusted debt-to-EBITDA would likely increase above 5.0 times), potential integration risks, the changing competitive landscape, the regulatory environment (including potential introduction of new directives), and the ability and pace of the organization to de-leverage post close.
DBRS Morningstar will proceed with its review as more information becomes available and aims to resolve the Under Review with Negative Implications status in a timely manner after the closing of the Transaction is announced.
If the Transaction is approved, DBRS Morningstar’s review will focus on (1) assessing the business risk profile of the combined entity as well as the risks associated with integration and realization of synergy potential; (2) Rogers’ financial risk profile on a pro forma basis, including the free cash flow-generating capacity of the combined entity and final financing structure (including costs and fees not initially contemplated when the Transaction was initially announced on March 15, 2021); and (3) the Company’s longer term business strategy amid a dynamic competitive landscape and financial management intentions.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies applicable to the ratings are Rating Companies in the Communications Industry (July 21, 2022; https://www.dbrsmorningstar.com/research/400203), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), and DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 20, 2022; https://www.dbrsmorningstar.com/research/404248).
The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223 .
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The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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