Rogers, accustomed to high debt, secures record bridge loan for Shaw deal - The Globe and Mail

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

Melissa Tait/The Globe and Mail

Rogers Communications Ltd. struck the largest sole-sourced bridge loan in Canadian history this week, landing a $19-billion commitment from New York-based BofA Securities to pay for its planned takeover of rival Shaw Communications Inc.

Rogers chief executive officer Joe Natale said the loan is “a sign of faith the financial community has in Rogers.”

The country’s second-largest telecom company won’t actually receive the money unless the Shaw deal closes as planned next year.

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Bankers say the massive Rogers financing signals lenders are willing to put up significant amounts of capital to back 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 potential US$20-billion takeover of French grocer Carrefour SA , a deal that was blocked by the French government.

Rogers’s bridge loan will be syndicated, or farmed out, to numerous other banks by early next week. Rogers expects to initially pay between 4-per-cent and 5-per-cent interest on the loan, according to banking sources and bond market traders. The Globe and Mail is not naming these sources because they are not authorized to speak for Rogers and the terms of the financing are not finalized. BofA Securities, the investment dealer arm of Bank of America Corp. , declined to comment.

Rogers needed to line up a bridge loan prior to its bid for Shaw because Canadian securities regulations require takeovers be fully funded when they are announced.

If the Shaw deal closes, Rogers would draw on the bridge loan, then plans to move quickly to pay down a portion of the debt and refinance the remainder by issuing bonds and other long-term financing. In all, the banks would stand to earn tens of millions of dollars in merger-and-acquisition and financing fees on the transaction. On Tuesday, Rogers’s long-term Canadian and U.S. dollar-denominated bonds were yielding around 3.7 per cent, and bond traders said the bridge loan will likely have similar interest rates.

Rogers is borrowing and would take on an additional $5.8-billion of Shaw’s debt if its takeover is successful at a time when interest rates are near record lows and credit markets are wide open. Canadian governments and companies borrowed a record $269.7-billion in 2020, according to Refinitiv, much more than the previous single-year record of $184.9-billion.

Some business owners might fret over borrowing this much money. However, at Rogers, this kind of leverage is considered conservative.

Rogers and credit rating agencies said the telecom company will remain an investment-grade credit even after a debt-funded Shaw purchase. Rogers’s long-term debt is currently rated triple-B-plus by Standard & Poor’s. That’s a contrast to the years of junk bond ratings at the Toronto-based company when founder Ted Rogers was building the business through acquisitions.

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In the 1960s, Mr. Rogers famously broke a promise to his wife’s family by mortgaging the home they bought for the newlywed couple, in Toronto’s upscale Forest Hill neighbourhood, to launch his business.

In the 1980s, Rogers was one of the the first cable companies to tap the U.S. junk bond market, after Canadian banks balked at further loans to the company. Initially, the company hired Michael Milken’s firm Drexel Burnham Lambert to raise US$181-million, money Rogers used to buy Canadian and U.S. cable franchises.

As a junk bond borrower in 1983, Rogers paid up to 14.25-per-cent rates to borrow for five years. However, none of the interest payments were due until the debt matured, giving the company time to integrate cable operations and crank up cash flow. After a Shaw takeover, Rogers expects to generate $1-billion annually in synergies from combining the companies and lower its debt from five times annual earnings before interest, taxes, depreciation and amortization to three times EBITDA within two years.

In 2004, Rogers staged the largest junk bond offering in Canadian history, raising US$2.7-billion. The investment banker behind that financing was Robert Gemmell, who ran Citibank in Canada and also helped finance 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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2021-03-16 22:46:38Z
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