Rogers, used to high debt, secures record bridging loan for Shaw deal

Rogers, used to high debt, secures record bridging loan for Shaw deal

The Rogers Communications Tower at One Mount Pleasant in Toronto on March 15, 2021.

Melissa Tait / The Globe and Mail

Rogers Communications Ltd. this week took out the largest single-vendor bridging loan in Canadian history, securing a $ 19 billion pledge from New York-based BofA Securities to pay for its planned takeover of rival Shaw Communications Inc.

Rogers CEO Joe Natale said the loan was “a sign of the financial community’s confidence in Rogers.”

The country’s second-largest telecommunications company will not receive the money unless the Shaw deal goes through as planned next year.

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Bankers say Rogers’ massive funding indicates lenders are willing to invest significant amounts of capital to support acquisitions. BofA made its commitment to Rogers on the heels of Alimentation Couche-Tard Inc., owner of Circle K convenience stores, lining up a similar-sized debt package for a possible US $ 20 billion takeover of the French grocer. Carrefour SA, a transaction that was blocked by the French government.

Rogers’ bridge loan will be syndicated or ceded to many other banks early next week. Rogers expects to pay between 4% and 5% interest on the loan initially, according to banking sources and bond market traders. The Globe and Mail does not name these sources because they are not authorized to speak on behalf of Rogers and the terms of the funding have not been finalized. BofA Securities, the investment brokerage arm of Bank of America Corp., declined to comment.

Rogers had to line up a bridging loan before its offer on Shaw because Canadian securities regulations require buyouts to be fully funded when announced.

If the deal with Shaw goes through, Rogers would pull on the bridging loan, then plans to move quickly to pay off some of the debt and refinance the rest by issuing bonds and other long-term finance. In total, the banks would earn tens of millions of dollars in M&A and financing fees on the transaction. Rogers’ long-term Canadian and U.S. dollar-denominated bonds were yielding about 3.7% on Tuesday, and bond traders said the bridge loan will likely have similar interest rates.

Rogers is borrowing and would accept an additional $ 5.8 billion in debt from Shaw if its buyout is successful at a time when interest rates are near all-time lows and credit markets are wide open. Canadian governments and businesses borrowed a record $ 269.7 billion in 2020, according to Refinitiv, far more than a previous year’s record of $ 184.9 billion.

Some business owners might be worried about borrowing so much money. However, at Rogers, this type of leverage is considered conservative.

Rogers and the rating agencies have said the telecommunications company will remain prime credit even after a debt-financed purchase of Shaw. Rogers long-term debt is currently rated triple-B-plus by Standard & Poor’s. This is in contrast to the years of the Toronto firm’s junk bond rating when founder Ted Rogers was growing the business through acquisitions.

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In the 1960s, Mr. Rogers broke a promise to his wife’s family by mortgaging the house they bought for the newlywed couple in the upscale Forest Hill neighborhood of Toronto to start his business. .

In the 1980s, Rogers was one of the first cable companies to tap into the US junk bond market, after Canadian banks were reluctant to make new loans to the company. Initially, the company hired Michael Milken’s company, Drexel Burnham Lambert, to raise US $ 181 million, money used by Rogers to buy Canadian and US cable franchises.

As a junk bond borrower in 1983, Rogers paid up to 14.25% rate to borrow for five years. However, none of the interest payments were due until the debt maturity date, giving the company time to integrate cable operations and increase cash flow. Following a Shaw takeover, Rogers expects to generate $ 1 billion per year in synergies from the business combination and reduce its debt from five times annual earnings before interest, taxes, depreciation and amortization to three times the EBITDA within two years.

In 2004, Rogers organized the largest junk bond issue in Canadian history, raising US $ 2.7 billion. The investment banker behind this funding was Robert Gemmell, who ran Citibank in Canada and who also helped fund Rogers while working at Merrill Lynch, now part of BofA Securities. After retiring, Mr. Gemmell joined the Rogers Board of Directors.

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