(Bloomberg) – To finance its acquisition of a smaller competitor of $ 16 billion, Rogers Communications Inc. plans to to increase its debt burden so that weaker companies run the risk of cutting to junk. It is a high input that the Canadian telecommunications company will be able to cut costs and repay its loans quickly after its acquisition of Shaw Communications Inc.
The company is counting on credit demand to stay strong after Verizon Communications Inc. Sold $ 25 billion worth of bonds to fund purchases of 5G airwaves last week. The debt sale, which reached the sixth largest US high-yield offering ever, peaked at $ 109 billion in demand.
“Rogers is always looking for opportunities to refinance his debt, and it will continue, whether it is outside or inside this transaction,” said CEO Joe Natale. The merger’s timing was aided by supporting capital markets, he added. “The bridge funding we have already received, and the interest we have in funding this transaction, has been tremendous.”
Canada is expected to launch a 3500 MHz spectrum auction on June 15, a key component in the expansion of 5G telecommunications services. In the US, communications giants Verizon and AT&T Inc. a rush to buy 5G wireless airwaves added billions of dollars to the pipeline for corporate bond sales.
The leverage ratio for the combined Rogers / Shaw company is expected to be just over five times the debt to earnings before interest, tax, depreciation and amortization, which could put pressure on current credit ratings. The leverage will drop to 3.5 times in the next three years, enabling them to maintain an investment-grade credit rating, Rogers chief financial officer Tony Staffieri told a conference after announcing the deal.
‘North of five times, debt Ebitda is an exceptionally high leverage ratio to see in the investment grade. But if anyone knows how to handle very high leverage, it’s Rogers. ”Says Randy Steuart, portfolio manager at Ewing Morris Investment Partners. “Rogers is no stranger to using leverage in an intelligent way, and this cash-heavy consideration indicates a very high level of confidence in the company’s debt downfall.”
Rogers is rated BBB + by S&P Global Ratings, two steps higher than Shaw Communications. The rating agency put Rogers on Monday for a possible downgrade, while Fitch Ratings put its BBB + score on a negative watch, saying a downgrade is likely to be limited to one level.
‘There is a huge risk to the C $ 1 billion synergy benefits that RCI expects over the next few years. In our opinion, the increased leverage significantly limits the company’s financial flexibility if the growth of Ebitda is delayed due to synergies, “Aniki Saha-Yannopoulos, S&P, said in a statement on Monday. “As a result, we consider the credit statistics to be in line with the weaker end of the ‘BBB’ category and believe it could lead to a downgrade of two degrees.”
Rogers’ $ 1 billion of 3.7% bonds as of 2049 were one of the biggest declines in the U.S. investment grade market on Monday, rising to 143 basis points more than the treasury, up from 126 at the end of last week, .
“We have a high degree of confidence that we can aggressively work off the debt-to-debt ratio,” Staffieri said. The management of the company spent some time with credit rating agencies last week and read through their financial models.
The companies said on Monday that the cash offer of C $ 40.50 per share had the support of Shaw’s board. The proposal represents a 69% premium to Shaw’s most recent closing price. Efficiency may be due to the optimization of the resulting corporate debt profile, said John Butler, analyst at Bloomberg Intelligence.
Rogers retained Bank of America Corp.’s BofA Securities and Barclays Plc as financial advisers for the transaction, while Shaw TD Securities Inc. appointed.
According to people with knowledge of the matter, Bank of America also provides a bridge loan of C $ 19 billion to finance the transaction. The deal, one of the largest M&A loans offered in Canada, will be syndicated, say the people who asked not to be identified because the details are private. One of the people can refinance the loan with a mix of bonds and term loans in currencies, including Canadian and US dollars.
A BofA representative declined to comment.
“The agreement is aimed at promoting Rogers’ presence in Western Canada and building a true, national footprint for 5G,” Butler said. “The agreement also offers a greater scale of Rogers efficiency from an operational standpoint.”
USA
Junk bonds have passed about $ 9 billion to make it the second busiest March on record for issuance, according to data compiled by Bloomberg. With more than $ 27 billion already sold this month, it could only happen this week with more companies expected to hit the market to include low borrowing costs.
Six companies exploit US investment grade market
Forecasts for the week ask for about $ 35 billion with a potential jumbo bond in the factory For transaction updates, click here for the New Issue Monitor Click here for the Credit Daybook Americas
Europe
Verizon Communications Inc. led a charge of a tripartite offer by the issuers, following its solid $ 25 billion sale last week in the US. It also announced an Australian agreement.
The European deal was one of ten in the market, including the sale of insurer Hannover Rueck SE and Barclays Plc of so-called Tier 2 debt taking losses before senior debt when a financial firm gets into trouble. There have been several issuers who hire banks before the likely mortgage sales, including Medical Properties Plus Inc. preparing a sterling agreement, and Simon Property Group being issued in euros. The CVC-owned trader Douglas GmbH wants to refinance bonds and loans with new debt, backed by 220 million euro shares
Asia
China’s Fujian Yango Group on Monday was the only borrower offering dollar bonds after picking up the issue in Asia last week.
Yield premiums on investment-grade dollar bonds in Asia ex-Japan and the cost of insuring them against default rose in trading early Monday after U.S. Treasury yields rose Friday. The Fed’s policy meeting this week is a key market focus
According to credit traders, the spread of the high-grade dollar notes increased by $ 2 per second as yields on the U.S. Treasury remained high for about a year for about a year. , after a US court blocked a government investment ban on the firm
(Updates with more details on bridge borrowing in the 13th paragraph. An earlier version of the story corrected the attribution in the fifth paragraph.)
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