Rogers Communications Ltd. closed the largest single-vendor bridge loan in Canadian history this week, securing a $ 19 billion commitment 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 confidence the financial community has in Rogers.”
The nation’s second-largest telecommunications company won’t receive the money unless the Shaw deal goes through as planned next year.
Bankers say Rogers’ massive funding indicates lenders are willing to invest significant capital to support acquisitions. BofA made its commitment to Rogers in the wake of Alimentation Couche-Tard inc. , owner of Circle K convenience stores, lining up a similar-sized bundle of debt for a potential US $ 20 billion takeover of French grocer Carrefour SA , an agreement that was blocked by the French government.
Rogers’ bridge loan will be syndicated, or leased, to many other banks by 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 are not finalized. BofA Securities, the investment brokerage arm of Bank of America Corp. , declined to comment.
Rogers had to line up a bridging loan ahead of its offer for Shaw because Canadian securities regulations require takeovers to be fully funded when announced.
If the deal with Shaw goes through, Rogers will use 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 bonds denominated in Canadian and U.S. dollars were yielding around 3.7% on Tuesday, and bond traders said the bridging loan will likely have similar interest rates.
Rogers is borrowing and would assume an additional $ 5.8 billion in Shaw’s debt if its takeover is successful at a time when interest rates are near record lows and credit markets are widely open. Canadian governments and businesses borrowed a record $ 269.7 billion in 2020, according to Refinitiv, far more than the previous annual 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 credit-quality even after a debt-financed purchase of Shaw. Rogers long-term debt is currently rated triple B-plus by Standard & Poor’s. This contrasts with the years of rating the Toronto-based company’s junk bonds when founder Ted Rogers was growing the business through acquisitions.
In the 1960s, Rogers broke a promise to his wife’s family by mortgaging the house they bought for the newlywed couple in Toronto’s upscale Forest Hill neighborhood 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 extend further loans to the company. Initially, the company hired Michael Milken’s company, Drexel Burnham Lambert, to raise US $ 181 million, money that Rogers used to buy Canadian and US cable franchises.
As a junk bond borrower in 1983, Rogers paid up to 14.25% 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 its cash flow. After a takeover by Shaw, Rogers expects to generate $ 1 billion per year in synergies from the business combination and reduce its debt from five times its annual earnings before interest, taxes, depreciation and amortization to three times its 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 also helped fund Rogers while working at Merrill Lynch, now part of BofA Securities. Following his retirement, Mr. Gemmell joined the Rogers Board of Directors.
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