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Gold/Mining/Energy : T.TSE Telus Corp. -- Ignore unavailable to you. Want to Upgrade?

To: Zardoz who wrote (94)	7/25/2002 12:25:14 PM
From: Zardoz	Respond to of 107

Thursday July 25, 11:46 am Eastern Time Reuters Company News Moody's cuts TELUS Corp senior unsecured rating Approximately US$4.3 Billion of Debt Securities Affected (Press release provided by Moody's Investors Service) NEW YORK, July 25 - Moody's Investors Service lowered the Senior Unsecured rating of TELUS Corporation from Baa2 to Ba1. The outlook is negative. The rating action reflects Moody's concern that TELUS' free cash flow to repay debt will be modest in relation to its debt level even in 2004. In the interim, Moody's believes TELUS will incur negative free cash flow this year and likely next. This is driven by continued gross cash consumption in its competitive local operation in Eastern Canada, offset by modestly positive gross cash generation in their national wireless operation and gross cash generation in their incumbent properties, all before allocation of interest, taxes and dividends. TELUS has also been negatively affected this year by two major regulatory decisions, which will reduce EBITDA by C$300 million on an annualized basis. The outlook is negative as Moody's believes that the company has execution risk on its downsizing programme and its broader business plan. Additionally the company may have little flexibility to react to adverse developments, as it has already reduced its dividend, has few significant non-strategic assets available to sell, and is quickly moving to a maintenance level of capital expenditures. Moody's will closely monitor TELUS' progress and shortfalls to Moody's expectations may lead to a further lowering of the Senior Unsecured rating. Moody's believes TELUS' liquidity should be adequate under its bank facility. However it notes that a meaningful shortfall in EBITDA from management expectations, or a cancellation of its planned C$500 million securitization programme, would stress availability. The rating recognizes that TELUS has a strong competitive position as the second-largest incumbent telecommunications carrier in the protected Canadian market. The reduction of 6000 employees, substantially in the incumbent carrier business, will allow TELUS to reduce its cost structure. However, union renewal contract negotiations may prove challenging. Moody's believes such actions are critical for the company to turn cash flow positive on a consolidated basis by 2004. Moody's recognises TELUS Mobility's emphasis on profitability over subscriber growth, which most other industry participants are also embracing, and Moody's expects Mobility to continue to improve its EBITDA margin and also reduce capital expenditures. Despite this, Moody's believes that TELUS Mobility will make only a modest contribution to consolidated gross cash generation (EBITDA-Capex) even by 2004. Moody's believes that TELUS' competitive carrier business in Eastern Canada will incur negative free cash flow for the foreseeable future. It is unclear whether TELUS will be able to gain significant profitable market share from Bell Canada, the strong market leader in eastern Canada, to generate positive returns on the meaningful investments TELUS is making there. This business adversely affects creditworthiness currently. TELUS' debt totaled C$9 billion at the end of last year, and Moody's believes this will increase again in 2002 and possibly 2003 before the company can start reducing outstandings with free cash flow in 2004. Management has been taking a number of steps to improve creditworthiness, such a reducing its dividend, improving the dividend reinvestment plan, reducing capital expenditures quickly, selling real estate, selling the directories business, dramatically downsizing operating costs, and committing itself to improved financial targets by the end of 2003. Moody's nevertheless believes that the company will need to execute well to its plan in order to maintain the new ratings, given the amount of its outstanding debt obligations. Finally, close to 30% of outstanding debt and other liabilities, including accounts payable, will be owed by TELUS Communications, the operating company, or outstanding under a pending C$500 million receivables securitization programme. Such obligations are structurally superior to the senior unsecured debt and other liabilities at TELUS Corporation. Management has substantially reduced and intends to continue to reduce this percentage over time, but the pending C$350 million increase in the securitization programme leaves the degree of structural subordination of the Ba1-rated notes at a meaningful level. Debt affected by this action: 7.5% Notes due June 2006 C$1.6 billion 7.5% Notes due June 2007US$1.3 billion 8.0% Notes due June 2011US$2.0 billion. TELUS Corporation is Canada's second-largest telecommunications company, offering local, long distance, data and wireless services. The Company is headquartered in Vancouver, British Columbia. biz.yahoo.com