DBRS Confirms Bell Nordiq Income Fund at STA-2 (high)

Dominion Bond Rating Service (DBRS) has today confirmed the rating of the Bell Nordiq Income Fund (Bell Nordiq or the Fund) at STA-2 (high). The stability rating remains firmly in the STA-2 (high) category, underpinned by strong market-share positions and the ability to convert a substantial portion of revenue to distributable cash flow as a result of its unique geographic characteristics along with a seasoned management team. In addition, the Fund is supported by the continued financial flexibility afforded through the cash generation and strong balance sheets of both Télébec Limited Partnership and NorthernTel Limited Partnership (the Partnerships).

However, as previously outlined by DBRS, the ability to further improve the stability rating is hindered by geographic and demographic limitations, moderate growth opportunities and, to a lesser extent, the stability rating of its new indirect majority owner, the Bell Aliant Regional Communications Income Fund (Bell Aliant).

DBRS sees both new opportunities and challenges through the new ownership structure. Positives include the ability to sell additional services and cross-transfer Bell Nordiq’s rural telecom expertise. Therefore, Bell Nordiq’s ability to maintain its independence may be dictated by the value it can bring to BCE Inc., the ultimate parent.

Bell Nordiq is likely to continue exploring acquisitions that are contiguous to its territory, although DBRS does not expect a material acquisition. DBRS expects that Bell Nordiq will maintain a balanced capital structure if a transaction is executed, although the potential for debt levels to increase and coverage and liquidity ratios to come under pressure could occur. This in itself would likely not cause a change in the stability rating. However, any change in the financial profile along with increased competitive pressures that result in EBITDA margins declining below the high 40% range, or unforeseen issues at Bell Aliant, could cumulate in a negative adjustment by DBRS to Bell Nordiq’s stability rating.