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Rogers Communications Inc. RCI-A-T has raised US$750-million in a financing – half the amount it was looking for, which will increase pressure on the telecom to sell assets in order to preserve its investment-grade credit rating.

After a two-day marketing campaign that played out during volatile credit markets, Rogers sold hybrid securities late Thursday that pay 5.25-per-cent interest, a slightly higher rate than the company anticipated. U.S. institutional investors bought the offering, which matures in 60 years. Toronto-based Rogers will use the money to pay down short-term debt ahead of its planned $26-billion takeover of Shaw Communications Inc. SJR-A-X

In early December, Rogers raised $2-billion selling hybrid securities with a 5-per-cent interest rate to Canadian investors, an offering that was doubled in size over the course of a sales campaign owing to strong demand from insurers, pension plans and other institutions. Hybrid securities have characteristics of both debt and equity – features that earn favourable treatment from agencies reviewing a company’s credit rating.

Rogers was part of a flood of corporate borrowers trying to tap U.S. credit markets last week, as the prospect of the U.S. Federal Reserve hiking interest rates on inflation concerns spooked investors. In January, the U.S. investment-grade corporate bond benchmark fell 3.34 per cent. Anders Persson, the chief investment officer for global fixed income at asset manager Nuveen LLC, said last week in a report: “The underperformance came after the Fed’s hawkish message, and conditions were generally volatile.”

Corporate bond issues “dried up” in late January, Mr. Persson said, which meant more companies are trying to borrow in February. New York-based Nuveen, which manages US$1.2-trillion, estimates companies tried to raise US$20-billion in credit markets last week and will try to tap the U.S. corporate bond market for US$110-billion this month, 10 per cent above the five-year average value of offerings.

Last March, S&P Global Ratings and other agencies put Rogers on credit watch, with negative implications, after the company announced plans to acquire Calgary-based Shaw. Rogers then committed $3.3-billion to buy wireless spectrum for 5G networks in July.

S&P said it anticipates a two-notch downgrade, which would leave BBB+ rated Rogers just one notch above a non-investment-grade rating. Slipping to non-investment-grade status would increase the telecom’s borrowing costs just as it takes on additional debt to buy Shaw and build out 5G networks. Rogers has consistently said it will maintain an investment-grade credit rating.

Prior to the smaller-than-expected hybrid securities financing, analyst Drew McReynolds at RBC Capital Markets said Rogers is considering raising money through asset sales to strengthen its balance sheet. The company is the largest shareholder in Quebec cable company Cogeco Inc. and also holds stakes in Toronto professional sports franchises, a collection of businesses Mr. McReynolds estimates is worth $4.3-billion. In a report, he said Rogers “could explore options for the Cogeco stake and crystallizing excess real estate.”

Rogers is also expected to raise several billion dollars from selling all or part of Shaw’s cellphone networks, including Freedom Mobile, if the federal government forces divestiture of the business as a condition of a takeover approval.

Canadian regulators and politicians are currently reviewing the transaction, and Rogers expects it to close by June. After acquiring Shaw, Rogers estimates it will realize $1-billion in annual synergies, mainly from combining the two companies’ cable networks.

The acquisition will see Rogers spend $19-billion in cash, issue 23.6 million Rogers shares to the Shaw family and assume $5.8-billion of Shaw debt and preferred shares.

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