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6.7 Liquidity

6.7 Liquidity

Sources of liquidity

Our cash and cash equivalents balance at the end of 2016 was $853 million. We expect that this balance, our 2017 estimated cash flows from operations, and capital markets financing, including commercial paper, will permit us to meet our cash requirements in 2017 for capital expenditures, post-employment benefit plans funding, dividend payments, the payment of contractual obligations, maturing debt, ongoing operations, and other cash requirements.

Should our 2017 cash requirements exceed our cash and cash equivalents balance, cash generated from our operations, and capital markets financing, we would expect to cover such a shortfall by drawing under committed credit facilities that are currently in place or through new facilities to the extent available.

Our cash flows from operations, cash and cash equivalents balance, capital markets financing and credit facilities should give us flexibility in carrying out our plans for future growth, including business acquisitions and contingencies.

The approximate $3.1 billion consideration (excluding the assumption of $0.8 billion of outstanding MTS debt) for the proposed acquisition of MTS will be paid 45% in cash and 55% through the issuance of approximately 28 million BCE common shares. BCE will fund the cash component of the transaction through the debt financing referred to below. The approximate $300 million proceeds, subject to final adjustments, to be received from the proposed divestiture to the TELUS Group of approximately one-quarter of MTS’ postpaid wireless subscribers and of 13 retail locations in Manitoba will reduce the aggregate amount of debt financing required for the acquisition of MTS.

Subsequent to year end, on February 27, 2017, Bell Canada completed a public offering of $1.5 billion of MTN debentures in two series pursuant to its MTN program. The $1 billion Series M-44 MTN debentures will mature on February 27, 2024 and carry an annual interest rate of 2.70%. The $500 million Series M-45 MTN debentures will mature on February 27, 2047 and carry an annual interest rate of 4.45%. The MTN debentures are fully and unconditionally guaranteed by BCE. The net proceeds of the offering are intended to be used principally to fund the cash component of the proposed acquisition of MTS, and to repay short-term debt.

The table below is a summary of our total bank credit facilities at December 31, 2016.

DECEMBER 31, 2016

TOTAL
AVAILABLE
  DRAWN   LETTERS
OF CREDIT
  COMMERCIAL
PAPER
OUTSTANDING
  NET
AVAILABLE
 

Committed credit facilities

                   

Unsecured revolving and expansion credit facilities(1)(2)

3,500       2,612   888  

Unsecured committed term credit facility(3)

479   479        

Other

134     130     4  

Total committed credit facilities

4,113   479   130   2,612   892  

Total non-committed credit facilities

1,472     741     731  

Total committed and non-committed credit facilities

5,585   479   871   2,612   1,623  

 

Bell Canada may issue notes under its Canadian and U.S. commercial paper programs up to the maximum aggregate principal amount of $2.5 billion in either Canadian or U.S. currency provided that at no time shall such maximum amount of notes exceed $3.5 billion in Canadian currency which equals the aggregate amount available under Bell Canada’s supporting committed revolving and expansion credit facilities as at December 31, 2016. The maximum amounts of the commercial paper programs and the committed expansion credit facility both reflect an increase of $500 million effective on December 20, 2016 as compared to December 31, 2015. The total amount of the committed revolving and expansion credit facilities may be drawn at any time. Some of our credit agreements require us to meet specific financial ratios and to offer to repay and cancel the credit agreement upon a change of control of BCE or Bell Canada. We are in compliance with all conditions and restrictions under such agreements.

 

Cash requirements

CAPITAL EXPENDITURES

In 2017, our planned capital spending will be focused on our strategic imperatives, reflecting an appropriate level of investment in our networks and services.

POST-EMPLOYMENT BENEFIT PLANS FUNDING

Our post-employment benefit plans include DB pension and defined contribution (DC) pension plans, as well as other post-employment benefits (OPEBs) plans. The funding requirements of our post-employment benefit plans, resulting from valuations of our plan assets and liabilities, depend on a number of factors, including actual returns on post-employment benefit plan assets, long-term interest rates, plan demographics, and applicable regulations and actuarial standards. Our expected funding for 2017 is detailed in the following table and is subject to actuarial valuations that will be completed in mid-2017. Actuarial valuations were last performed for our significant post-employment benefit plans as at December 31, 2015.

2017 EXPECTED FUNDING

TOTAL  

DB pension plans – service cost

210  

DB pension plans – deficit

15  

DB pension plans

225  

OPEBs

80  

DC pension plans

105  

Total net post-employment benefit plans

410  

BCE closed the membership of its DB pension plans to new employees in January 2005 to reduce the impact of pension volatility on earnings over time. Generally, new employees now enrol in the DC pension plans. In 2006, we announced the phase-out, over a 10-year period, of OPEBs for new retirees, which will result in OPEBs funding being phased out gradually after 2016.

DIVIDEND PAYMENTS

In 2017, the cash dividends to be paid on BCE’s common shares are expected to be higher than in 2016 as BCE’s annual common share dividend increased by 5.1% to $2.87 per common share from $2.73 per common share effective with the dividend payable on April 15, 2017. This increase is consistent with BCE’s common share dividend payout policy of a target payout between 65% and 75% of free cash flow. BCE’s dividend policy and the declaration of dividends are subject to the discretion of the BCE Board.

CONTRACTUAL OBLIGATIONS

The following table is a summary of our contractual obligations at December 31, 2016 that are due in each of the next five years and thereafter.

 

2017   2018   2019   2020   2021   THERE-
AFTER
  TOTAL  

Recognized financial liabilities

                            

Long-term debt

880   1,753   1,326   1,411   2,235    8,037   15,642  

Notes payable

2,649              2,649  

Minimum future lease payments under finance leases

568   514   328   265   253    1,050   2,978  

Loans secured by trade receivables

931              931  

Interest payable on long-term debt, notes payable and loan secured by trade receivables

720   638   568   520   477    4,875   7,798  

MLSE financial liability

135              135  

Commitments (off-balance sheet)

                            

Operating leases

297   242   195   157   123    363   1,377  

Commitments for property, plant and equipment and intangible assets

994   745   608   460   385    1,122   4,314  

Purchase obligations

828   585   551   460   444    1,129   3,997  

Proposed acquisition of MTS(1)

3,068              3,068  

Acquisition of Cieslok Media(2)

161              161  

Total

11,231   4,477   3,576   3,273   3,917    16,576   43,050  

 

BCE’s significant finance leases are for satellites and office premises. The office leases have a typical lease term of 23 years. The leases for satellites, used to provide programming to our Bell TV customers, have a term of 15 years. These satellite leases are non-cancellable. Minimum future lease payments under finance leases include future finance costs of $718 million.

BCE’s significant operating leases are for office premises, cellular tower sites, retail outlets, and out-of-home advertising spaces with lease terms ranging from 1 to 50 years. These leases are non-cancellable. Rental expense relating to operating leases was $353 million in 2016 and $340 million in 2015.

Our commitments for property, plant and equipment and intangible assets include program and feature film rights and investments to expand and update our networks to meet customer demand.

Purchase obligations consist of contractual obligations under service and product contracts for operating expenditures and other purchase obligations.

INDEMNIFICATIONS AND GUARANTEES (OFF-BALANCE SHEET)

As a regular part of our business, we enter into agreements that provide for indemnifications and guarantees to counterparties in transactions involving business dispositions, sales of assets, sales of services, purchases and development of assets, securitization agreements and operating leases. While some of the agreements specify a maximum potential exposure, many do not specify a maximum amount or termination date.

We cannot reasonably estimate the maximum potential amount we could be required to pay counterparties because of the nature of almost all of these indemnifications and guarantees. As a result, we cannot determine how they could affect our future liquidity, capital resources or credit risk profile. We have not made any significant payments under indemnifications or guarantees in the past.

 

Litigation

In the ordinary course of our business, we become involved in various claims and legal proceedings seeking monetary damages and other relief. In particular, because of the nature of our consumer-facing business, we are exposed to class actions pursuant to which substantial monetary damages may be claimed. Due to the inherent risks and uncertainties of the litigation process, we cannot predict the final outcome or timing of claims and legal proceedings. Subject to the foregoing, and based on information currently available and management’s assessment of the merits of the claims and legal proceedings pending at March 2, 2017, management believes that the ultimate resolution of these claims and legal proceedings is unlikely to have a material and negative effect on our financial statements or operations. We believe that we have strong defences and we intend to vigorously defend our positions.

You will find a description of the principal legal proceedings pending at March 2, 2017 in the BCE 2016 AIF.

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