• Notes From The Desk | FOMC Announcement

Notes From The Desk | FOMC Announcement Dec 08 2021

Rogers Launching First Telco Hybrid Deal

Rogers Communications is ‘making more possible’ by launching their first hybrid bond, a halfway house between debt and equity. This should help them maintain an investment-grade rating if the Shaw merger is completed.

The Deal Structure

· 60-year bond (callable in 5y) with a coupon of 5%.
· Counts as 50% debt and 50% equity.
· The bonds will be issued with a rating of BBB- but are expected to -drop to BB if the Shaw merger goes through.

The Rationale

· Rogers wants (or perhaps needs) to maintain an investment-grade rating without issuing new equity. To do so they need to keep leverage below 5x.
· This structure enables Rogers to issue debt without it all counting as debt. Otherwise, after the Shaw deal, their leverage ratios could push them into high yield.
· While the hybrid is expensive debt, it allows Rogers to maintain an investment-grade rating for their senior debt post-merger.

The Outlook

· Rogers has many options to delever in the coming years. They could sell all or part of Freedom Mobile (~3.5bn) and Cogeco (~1.7bn). They can also do a sale and leaseback of towers, spin them into a REIT, or sell other real estate assets.
· By 2026/2027 Rogers is expected to be firmly in the investment-grade category rather than on the cusp. If this occurs, they will no longer need expensive hybrid debt. Therefore there is a high likelihood that these bonds get called in 5 years.

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