Rogers Issues Senior Notes

Canadian telecom major Rogers Communication Inc (RCI - Analyst Report) is issuing C$1.1 billion senior notes, which will come up in two separate tranche. The company will issue C$500 million of the aggregate debt at an interest rate of 3%, due for payment on June 2017.

The remaining $600 million debt will carry an interest rate of 4% and is due for payment in June 2022. The offering, which is expected to close on June 4, has yet to get regulatory clearances.

The first tranche of the issue is priced at $999.21 for every $1,000 principal amount and have a yield to maturity of 3.017% per annum, which is 165.1 basis point above the Canadian government’s benchmark rate. The second part of the issue is priced at $996 per $1,000 principal amount and will yield an interest of 4.049% if held till maturity, which is again 225.1 basis points over the benchmark rate.

The company wants to utilize the proceeds to repay its outstanding debt and to fully or partially fund its $533 million investment in Maple Leaf Sports and Entertainment.

Rogers Communication exited the first quarter with a debt of $10,194 million and cash and marketable securities of $1,165 million. The company’s debt to capitalization ratio stood at 0.73 at the end of the reported quarter.

In the previous year, the telecom major had issued 10-year unsecured notes of CAD1.45 billion and 30 year unsecured notes of CAD400 million to pay back its 7.875% and 7.25% senior notes. We believe that the issuance of this low interest instrument will reduce the company’s interest burden while keeping its debt to capitalization ratio at the same level.

Wireless penetration in Canada is around 67%, which provides significant growth opportunities for the company. Increased adaptation of smartphones is also expected to create significant tailwind for Rogers Communication.

Additionally, the company boasts of a good cash position, which is reflected by its recent announcement to raise the annual dividend by 11% to $1.58 per share and plans to buyback $1.0 billion of Class B non-voting shares during the year. However, the company is facing increased competition due to the entry of rival Bell Canada (BCE - Analyst Report) in the cable sector.

Recommendation: We are maintaining our long-term Underperform recommendation on Rogers Communication. Currently Rogers Communication has a Zacks #5 Rank, implying a short-term Strong Sell rating on the stock.