DBRS Limited (DBRS Morningstar) confirmed BCE Inc.’s (BCE or the Company) Issuer Rating, Short-Term Issuer Rating, Unsecured Debentures rating, and All Classes Preferred Shares rating as well as the ratings of Bell Canada and Bell-MTS Inc. (the wholly owned subsidiary). All trends remain Stable, reflecting the Company's ability to drive total net subscriber growth, while also acknowledging the strategic importance of the current network fibre and 5G/5G+ investment cycle that is expected to support long-term earnings growth. The rating confirmations reflect 2022 operating performance that was in line with DBRS Morningstar’s expectations. The ratings are supported by the Company’s considerable size and scale, leading market position in wireline and wireless services, and other revenue diversification. The ratings also reflect intensifying competition, the expected loss of legacy wireline services revenues, higher near- to medium-term network investment spending, and the risks associated with technological and regulatory change.
BCE/Bell Canada’s earnings profile continued to be well positioned in the current rating category during 2022. The Company delivered steady operating growth with 2022 consolidated revenue of $24.2 billion (+3.1% year over year (YOY)) and EBITDA of $10.2 billion (+3.1% YOY), which was in line with DBRS Morningstar’s estimates.
BCE/Bell Canada’s financial profile continues to support the current ratings. DBRS Morningstar-calculated 2022 cash flow from operations was $8.0 billion (+4.3% YOY) and, as expected, capital expenditures (capex) increased to $5.1 billion (+6.1% YOY) as the Company completed its two-year accelerated capex program. Reflecting a higher year-end gross debt balance of $32.9 billion, gross debt-to-EBITDA was 3.22 times (x) in 2022 compared with 3.10x in 2021, despite EBITDA growth.
Looking ahead, DBRS Morningstar expects BCE/Bell Canada’s future earnings profile to benefit from the continued growth of the fibre-to-the-home footprint, which is expected to cover approximately 85% of the Company's 10.0 million locations target by YE2023, and an increase in mobile 5G availability to approximately 85% network coverage by YE2023.
DBRS Morningstar forecasts BCE/Bell Canada’s 2023 consolidated revenue to increase in the low- to mid-single-digit range to between $24.5 billion and $25.0 billion and forecasts the consolidated EBITDA margin to be roughly flat YOY.
DBRS Morningstar expects BCE/Bell Canada’s financial profile to absorb near-term cash flow pressures through 2024 primarily related to continued heavy network investment, partially offset by steady EBITDA growth and lower pension cash funding. Given the significant network investment demands and upcoming spectrum auctions, gross leverage is forecast to remain about 3.3x through 2024 before declining toward the Company’s long-term leverage target range between 2.0x and 2.5x. While the Company’s near-term leverage is expected to remain above 3.0x, DBRS Morningstar estimates that more than 80% of near-term capex and investment spending is focused on network growth and/or performance initiatives, an improved customer experience, and enhanced digital capabilities that are expected to drive long-term earnings growth.
DBRS Morningstar believes that BCE/Bell Canada has the scale, financial resources, and market position to manage the current 5G/fibre capex spending program within its current rating category over the near to medium term. Although unlikely, if BCE/Bell Canada were to achieve a substantial increase in its wireless and wireline market share that resulted in a commensurate structural improvement in the Company’s earnings profile, including a supportive regulatory environment, and were to manage leverage sustainably at the low end of the Company’s target range, a positive rating action could occur. Conversely, if, despite the utility-like nature of the industry, BCE/Bell Canada experienced a deterioration in its credit metrics as a result of weaker-than-expected operating performance, lower cash flow, and/or more aggressive-than-expected financial management in which leverage was at approximately 3.5x or higher for an extended period, a negative rating action could occur.
DBRS Morningstar applied the “Rating Companies in the Communications Industry” methodology based on a proportion of revenue derived from the Company’s Wireless and Wireline business segments. DBRS Morningstar applied the “Global Methodology for Rating Companies in the Broadcasting Industry” methodology based on a proportion of revenue derived from the Company’s media operations. DBRS Morningstar applied the “DBRS Morningstar Global Criteria: Commercial Paper Liquidity Support for Nonbank Issuers,” “DBRS Morningstar Global Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships,” “DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support,” and “DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers” as applicable.
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), Global Methodology for Rating Companies in the Broadcasting Industry (March 14, 2023; https://www.dbrsmorningstar.com/research/410794), DBRS Morningstar Global Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023; https://www.dbrsmorningstar.com/research/410196), DBRS Morningstar Global Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (October 26, 2022; https://www.dbrsmorningstar.com/research/404334), DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694), 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.
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