Mr. Julius Nyarko of DBRS reports

Issuer:  BCE Inc.

Debt rated:  commercial paper

Rating:  R-1 (low)

Trend:  stable

Rating action:  confirmed

Issuer:  BCE Inc.

Debt rated:  issuer rating

Rating:  BBB (high)

Trend:  stable

Rating action:  confirmed

Issuer:  BCE Inc.

Debt rated:  unsecured debentures

Rating:  BBB (high)

Trend:  stable

Rating action:  confirmed

Issuer:  BCE Inc.

Debt rated:  all classes preferred shares

Rating:  Pfd-3 (high)

Trend:  stable

Rating action:  confirmed

Issuer:  Bell Canada

Debt rated:  commercial paper

Rating:  R-1 (low)

Trend:  stable

Rating action:  confirmed

Issuer:  Bell Canada

Debt rated:  debentures and MTN debentures

Rating:  A (low)

Trend:  stable

Rating action:  confirmed

Issuer:  Bell Canada

Debt rated:  issuer rating

Rating:  A (low)

Trend:  stable

Rating action:  confirmed

Issuer:  Bell Canada

Debt rated:  subordinated debentures

Rating:  BBB

Trend:  stable

Rating action:  confirmed

DBRS Ltd. has confirmed the long- and short-term ratings of Bell Canada and its parent company BCE Inc. at A (low)/R-1 (low) and BBB (high)/R-1 (low), respectively. DBRS has also confirmed the ratings of Bell Canada's subordinated debentures at BBB. All trends remain stable. It should be noted that BCE's ratings are linked to the ratings of Bell Canada and reflect the structural subordination of debt (currently none outstanding) and its preferred share obligations relative to Bell Canada. The ratings acknowledge the increase in financial leverage resulting from the acquisition of Astral Media and privatization of Bell Aliant (which DBRS believes enhanced the company's scale and diversification), but also reflect the expectation for deleveraging over the medium term. The ratings continue to be supported by the company's large and established subscriber base and quad-play offerings, and also consider intensifying competition and the risks associated with regulatory change.

BCE/Bell Canada's earnings profile remains sound, supported by solid organic growth and market share gains in both wireless and wireline segments. Consolidated revenues grew by 2.4 per cent to $10.6-billion in the first half of 2015, driven primarily by strong postpaid net activations and average revenue per user (ARPU) gains in the wireless segment and break-even wireline revenues. EBITDA (earnings before interest, taxes, depreciation and amortization) margins rose modestly owing to continued execution of the fibre strategy and operating synergies from the privatization of Bell Aliant. As such, consolidated adjusted EBITDA rose by 3.0 per cent to $4.3-billion in the first half of 2015. While BCE/Bell Canada's earnings profile has shown resilience, financial leverage has increased over the past couple of years to a level that is putting considerable pressure on the current ratings. At June 30, 2015, gross debt to last 12 months EBITDA rose to 2.43 times, from 2.34 times in 2013.

Going forward, DBRS expects the company to deliver steady earnings growth based on continued strength in the wireless segment, stabilization in the wireline segment as IPTV and broadband advances continue to mitigate legacy revenue losses and cost savings initiatives combined with operating synergies stemming from the Bell Aliant integration. DBRS expects consolidated revenues to grow in the 2-per-cent to 3-per-cent range to $21.5-billion to $21.7-billion, while EBITDA margins are expected to be remain fairly stable in the 39-per-cent to 40-per-cent range. As such, DBRS expects consolidated EBITDA to range between $8.5-billion and $8.6-billion in 2015. The company's financial profile is expected to improve over the medium term, given its cash-generating capacity and management's stated intention to delever to a net debt to EBITDA target of 1.75 times to 2.25 times. In 2015, DBRS expects normalized cash flow from operations to grow slightly faster than operating income to $6.0-billion to $6.2-billion. DBRS forecasts that BCE will generate $400-million to $600-million of free cash flow before working capital in 2015, and use excess free cash flow to purchase spectrum assets and reduce debt.

Although the increase in leverage resulting from the recent acquisitions was meaningful, DBRS was willing to tolerate this increase within the current rating category given the benefits to the business risk profile as well as the company's solid coverage ratios and operating performance. Additionally, DBRS believes that the company retains the willingness and ability to gradually delever toward its net debt leverage target by mid-2017, through a combination of steady EBITDA growth and debt reduction. However, should the company be challenged in its efforts to improve credit metrics due to weaker than expected operating performance and/or more aggressive than expected financial management (debt-financed investments and/or share repurchases) this would likely lead to a negative rating action.