PrefBlog

Standard & Poor’s has announced:

• •We are removing our ratings on Shaw Communications Inc. from CreditWatch, where they were placed with negative implications Dec. 17, 2015.
• •At the same time, we are affirming our ratings on Shaw, including our ‘BBB-‘ long-term corporate credit rating. The outlook is negative.
• •We expect that Shaw will generate weak free cash flow over the next two years as the company integrates WIND Mobile Corp. and builds out its mobile network to the current industry-standard long-term evolution (LTE).
• •We could lower the rating on Shaw if fully adjusted debt leverage increases toward 3.5x, which could indicate the company is having difficulties achieving profitability expectations in mobile or increasing debt-funded capital to support its competitive position.
• •The negative outlook reflects our expectation of weak free cash flow over the next two years as the company integrates WIND and builds out its mobile network to the current industry-standard LTE.
• •We could revise the outlook to stable if Shaw’s free and discretionary cash flow measures improve enough to keep fully adjusted debt leverage consistently below 3x, which we believe would be characterized by free operating cash flow approaching 10% and sustained positive discretionary cash flow.
  …
  “The affirmation incorporates our expectation that Shaw will maintain fully adjusted debt leverage of about 3x over the next two years, which is consistent with our ‘BBB-‘ rating, after incorporating the WIND acquisition and the recently announced sale of Shaw Media,” said Standard & Poor’s credit analyst Donald Marleau.
  …
  The negative outlook reflects our expectation of weak free cash flow over the next two years as the company integrates WIND and builds out its mobile network to the current industry-standard LTE.

  We could lower the rating if we expect that Shaw’s fully adjusted debt leverage will increase toward 3.5x, which could indicate difficulties achieving profitability expectations in mobile or increased debt-funded capital to support the company’s competitive position.

  We could revise the outlook to stable if Shaw’s free and discretionary cash flow measures improve enough to keep fully adjusted debt leverage consistently below 3x, which we believe would occur if WIND EBITDA maintained a positive trajectory to exceed C$100 million by 2018 along with expectations of steady-to-declining capital expenditures. We believe that such a scenario would be characterized by free operating cash flow approaching 10% and sustained positive discretionary cash flow.

The acquisition of Wind Mobile was greeted with distaste by the Rating Agencies; both DBRS and S&P placed the rating on review-negative. As noted in the Market Action report for January 13, 2016, the acquisition will be financed by the sale of media assets to a related firm (or is it affiliated? I can never get that terminology right); this news was greeted with distinct lack of enthusiasm by DBRS, which is simply waiting for the acquisition to close before (very probably) downgrading the rating by a notch.

This entry was posted on Saturday, January 16th, 2016 at 1:26 am and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.