PrefBlog

DBRS has announced that it:

has today downgraded Shaw Communications Inc.’s (Shaw or the Company) Issuer Rating and Senior Notes rating to BBB (low) from BBB and its Preferred Shares rating to Pfd-3 (low) from Pfd-3. The trends are Stable. This action follows the closing of the Company’s acquisition of WIND Mobile Corp. (WIND) and the announcement to sell its broadcasting subsidiary, Shaw Media Inc. (Shaw Media) to Corus Entertainment Inc. (Corus). The rating action is caused by a gradual erosion in the core cable business owing to persistent subscriber weakness and the expectation that the recent transactions will result in a material weakening of Shaw’s free cash flow profile over the near to medium term.
…
DBRS notes that Shaw’s earnings profile has been under pressure for some time, owing to continued technological substitution of phone and cable services, increased competition from TELUS Corporation’s (TELUS) Internet protocol television (IPTV) offering and, more recently, economic softness in Alberta, regulatory-driven headwinds. Subscriber erosion accelerated in F2015, with a 3.2% decline recorded in total revenue generating units following a 0.8% decline in F2014. As such, Shaw has had to rely more heavily on price increases to drive earnings growth within its wireline business amid an increasingly competitive telecommunications market. Organic growth was weak in F2015, with much of the revenue and EBITDA increases (4.7% and 5.2%, respectively) attributable to the full-year inclusion of ViaWest. DBRS believes that, independent of the recent transactions, because of mounting pressures on subscribers and expectations of less predictable and potentially more strained organic earnings going forward, Shaw is more appropriately placed in the BBB (low) rating category.
…
In terms of financial profile, DBRS expects leverage to be reasonable for the revised rating category. As proceeds from the sale of the media assets will be used to pay for the WIND transaction, Shaw will not be required to raise additional debt financing. Pro forma total debt is expected rise to $5.9 billion by year-end F2016 from $5.7 billion in F2015, but this is because of a recent debt-financed tuck-in acquisition by ViaWest. EBITDA, however, is expected to decline with the divestiture of Shaw Media’s operating income and the modest contribution of WIND. As such, pro forma gross debt to EBITDA is expected to peak at roughly 2.8 times (x) by year-end F2017 from 2.4x in the last 12 months Q1 F2016. DBRS notes that the Company has reiterated its long-term target of net debt-to-EBITDA of between 2.0x and 2.5x.

This follows the December, 2015, expressions of nervousness regarding Shaw and the assessment of a negative outlook by S&P in January 2016.

This entry was posted on Friday, March 11th, 2016 at 9:28 pm 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.