BCE Preferreds Downgraded to P-2(low) by S&P; to Pfd-3(high) by DBRS

Standard & Poors has announced:

it raised its long-term corporate credit ratings on Montreal-based telecommunications holding company BCE Inc. and its principal operating subsidiary, Bell Canada, three notches to ‘BBB+’ from ‘BB+’. At the same time, we removed the ratings from CreditWatch with positive implications where they were placed Dec. 12, 2008, following the company’s announcement that its leveraged buyout (LBO) will not proceed. The outlook is stable.

“The rating action affects about C$7.1 billion of combined debt at BCE and Bell Canada as well as C$2.77 billion of BCE preferred shares,” said Standard & Poor’s credit analyst Madhav Hari. Based on Standard & Poor’s criteria for notching investment-grade debt, we have raised the issue-level rating on C$6.2 billion of Bell Canada’s senior unsecured debt to ‘BBB+’ from ‘BB+’ and raised the issue-level ratings on C$275 million of Bell Canada’s subordinated debt to ‘BBB’ from ‘BB’. At the same time, given our notching criteria for holding-company debt, we have affirmed the ratings on BCE’s C$650 million senior unsecured notes due Oct. 30, 2009, at ‘BBB+’; we currently expect that these obligations will be repaid at maturity from substantial cash balances at BCE. Also consistent with our criteria, we have affirmed the Canadian scale ratings on BCE’s preferred shares at P-2 (Low).

The stable outlook is based on our view of BCE’s expected low-single-digit revenue and EBITDA growth in the next few years, which we believe will allow the company to sustain conservative adjusted debt leverage at the 2x level, while maintaining a solid liquidity position. The stable outlook places significant emphasis on the company adhering to its publicly articulated financial policies. Given Standard & Poor’s concerns about increasing competition, and the potential for future shareholder-friendly
actions by the company, we believe it is currently less likely that we would revise the outlook to positive in the medium term. We could consider revising the outlook to negative should revenue and cash flow growth weaken, possibly from the combined effect of heightened competition and a prolonged economic downturn. We could also consider revising the outlook (or ratings) downward, if it became evident to us that BCE is considering a more aggressive shareholder-friendly policy.

DBRS has announced:

DBRS has today changed Bell Canada’s senior and subordinated debt ratings to A (low) and BBB, respectively, and assigned Bell Canada a short-term rating of R-1 (low). DBRS has also discontinued its Issuer Rating on Bell Canada. Additionally, with Bell Canada at A (low), DBRS has also changed its ratings on BCE Inc. (BCE or the Company) to BBB (high) and Pfd-3 (high) and assigned BCE Inc. a short-term rating of R-1 (low). All trends are Stable.

This rating action removes BCE and Bell Canada’s ratings from Under Review Developing and Positive implications, respectively. These reviews were initiated on December 11, 2008 following the termination of the privatization of BCE. DBRS had previously adjusted Bell Canada’s ratings in October 2008 under the assumption at that point that the privatization would close as planned.

DBRS’s ratings are driven by the credit profile of Bell Canada which is directly supported by the wireline, wireless and video operations of Bell Canada and its subsidiaries. BCE’s ratings reflect the structural subordination of its debt and preferred obligations relative to Bell Canada who supports these obligations. Bell Canada’s ratings are below its ratings prior to the privatization given a highly competitive operating environment for all of its services and execution risks centered on investing and repositioning Bell Canada to a more solid competitive footing. Despite this, Bell Canada’s A (low) rating reflects: (a) a good business risk profile; and (b) a reasonable financial risk profile which could improve incrementally over the next two years.

BCE preferreds were last mentioned on PrefBlog when DBRS put them on Review-Developing.

BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.B, BCE.PR.C, BCE.PR.D, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z

Update: If I look at my records for, say, BCE.PR.S, I find the following DBRS credit rating history:

DBRS Credit
Rating History
From To Rating
2001-11-1 2002-4-23 Pfd-2(high)
2002-4-24 2005-11-2 Pfd-2
2005-11-3 2009-2-10 Pfd-2(low)
2009-2-11 Infinite

I’m not certain … but I think I detect a pattern!

3 Responses to “BCE Preferreds Downgraded to P-2(low) by S&P; to Pfd-3(high) by DBRS”

  1. […] today’s excitement was the downgrade of the BCE Prefs, which had no real effect on prices, but does mean that the HIMIPref™ Ratchet and […]

  2. […] fund’s credit quality was affected by the downgrade of BCE, which did not have a great effect on its price. However, as a precautionary measure, holdings in […]

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