Fitch Affirms Rogers Wireless, Initiates Coverage of RCI & Rogers Cable

Business Wire, June 10, 2005

CHICAGO -- Fitch Ratings has affirmed the ratings of Rogers Wireless and initiated coverage of Rogers Communications Inc (RCI) and Rogers Cable. The rating affirmation of Rogers Wireless debt includes the senior secured debt rating of 'BB ' and a 'BB-' rating to the senior subordinated notes. Fitch also assigns a 'BB ' rating to Rogers Cable senior secured second priority notes and a 'BB-' rating to the senior subordinated guaranteed notes. At RCI, Fitch assigns a 'BB-' to RCI's senior unsecured debt, including the convertible debentures. The Outlook is Stable. Approximately $8.2 billion of debt securities are affected by these actions.

The ratings on the Rogers Group of companies incorporates the relatively high debt levels, the negative free cash flow at a consolidated RCI, and the lack of meaningful restrictions on advancing funds between companies. Additionally, Fitch recognizes the strong business position of cable and wireless as evidenced by Rogers bundle of video, HSD, wireless, and cable telephony (launch in second half of 2005) services. Debt at the consolidated RCI should increase modestly in 2005, largely as a result of funding requirements at Rogers Cable, before stabilizing in 2006. Consolidated cash generation is expected to materially improve over the rating horizon driven by sizable cash flow improvements at Rogers Wireless, modest cash flow increases at Rogers Cable, and reduced capital spending at Rogers Cable. Consolidated leverage for 2005 should remain at approximately the same level as the end of 2004 (5.2 times (x)) with leverage improving moderately in 2006.

RCI's liquidity position is adequate given the consolidated cash position, undrawn revolver capacity, Rogers Cable cash requirements, and the ability to effectively move funds between subsidiaries as required. At the end of the first quarter of 2005, RCI had $91 million of cash and approximately $1.9 billion of undrawn revolver capacity. RCI has US$225 million of convertible debentures maturing in November of 2005 and $235 million of debt maturing in 2006. Rogers Wireless maintains a $700 million bank credit facility maturing in 2010 that was undrawn at the end of the first quarter. Rogers Cable's bank credit facility is $1.075 billion consisting of two tranches: a $600 million revolving credit facility that matures in 2009 and a $475 million reducing revolver that also matures in 2009. The $475 million revolver commitment reduces annually by $119 million beginning in 2006. The bank credit facility covenants at wireless, and cable provides significant cushion under its most restrictive terms.

In addition, RCI maintains significant flexibility in advancing funds throughout the company as the restricted payments (RP) basket at wireless and cable are not overly limiting with the expectations for the RP baskets to increase materially over time as operational cash flow grows. Furthermore, with this ability to transfer funds between the parent and its subsidiaries, Fitch has converged the secured debt and subordinated debt ratings of wireless and cable to reflect RCI's ability to move funds at its discretion.

Cable's free cash flow deficit will likely increase to the range of $350 million to $450 million during 2005, largely the result of higher capital spending and working capital requirements. The increase in capital spending is driven by three primary capital initiatives: increase digital service penetration that leads to higher spending on set top boxes; accommodating high speed data (HSD) subscriber growth and HSD speed improvement initiatives; and the launch of VoIP service. Fitch believes that cable's free cash flow will improve in 2006 and 2007, driven by growth in operating cash flows and a reduction in capital expenditures. However, Fitch expects that Rogers Cable will be a net user of cash during this timeframe.

For the first quarter, Rogers Cable's leverage ratio (LTM basis) was 5.4x, including derivative instruments. Fitch expects leverage to increase to the range of 5.7x to 5.9x by the end of 2005, primarily the result of the company funding its 2005 cash requirement with debt. Moving forward, Fitch anticipates that debt levels will increase moderately to account for the company's funding requirements, however leverage is expected to decline moderately, reflecting the growth in operating cash flows.

Fitch's ratings also reflect the scale and operating benefits of Rogers Cable's highly clustered cable systems and its position as the largest MSO in Canada. Incorporated into the ratings are the marketing and operating synergies Rogers Cable leverages from Rogers Wireless. Fitch believes that the company is well positioned to grow EBITDA and reduce capital expenditures, which will eventually lead to positive free cash flow generation. From Fitch's perspective, the company's operating profile as well as its competitive position relative to the direct broadcast satellite (DBS) providers and incumbent telephone companies will strengthen as its revenue base and service diversity increase. Central to the company's strategy is the expected growth of its high margin HSD product and increasing the penetration of its digital service tier, including advanced digital services such as VOD, DVRs, and high definition television. In addition, Fitch believes that Rogers Cable's competitive position will be further enhanced with the roll out of its voice over internet protocol (VoIP) based telephony service during the second half of 2005. Fitch expects initial commercial introduction of the VoIP service during the second half of 2005 and for the service to present meaningful impact on Rogers Cable's operational profile starting in 2007. Fitch expects that the addition of the cable telephony product will help ease basic subscriber erosion and uniquely position Rogers Cable with a quadruple play service offering.