TD's NotesEvent: Corus has diversified away from 100% bank debt in its capital structure with a $500 million offering of seven-year notes priced at 5.0%.
Impact: SLIGHTLY POSITIVE
We are not changing any estimates or our target price, but we are pleased to see
that Corus has been able to win the confidence of Canadian bond investors with this
offering. At the time of the Shaw Media acquisition in 2016, Corus had attempted to
issue high-yield notes, but the offering was unsuccessful, despite a yield upwards
of 9% being offered by the company. The spread on that failed deal would have
been 850 bps or more above GoC treasuries, but bond investors seemingly lacked
confidence in the sustainability of revenue and cash flow at Corus.
Fast-forward five years, with the Shaw Media assets fully integrated, and Corus has
now been able to show enough stability in its results (including diversified revenue
streams in streaming, AdTech, and original content) to sell bonds, with less restrictive
covenants than its credit facilities, at a spread of 379 bps. To put this in perspective,
current spreads for BCE and Videotron are 115 bps and 175 bps, respectively. These
are stocks that are trading at single-digit FCF yields vs. Corus still at an arguably
elevated 22% yield based on our 2022E FCF.
We believe that this bond offering highlights the continued structural undervaluation
of CJR.B shares, which, we believe, will improve as the company recovers from the
pandemic with positive revenue growth starting in Q3/21.