TELUS Breaks New Ground with $1.6B Junior Subordinated Note Offering: A Strategic Move for Long-Term Growth
4min read 
TELUS Corporation has taken a bold step into uncharted financial territory with its $1.6 billion inaugural junior subordinated note offering, announced April 15, 2025. This marks the telecom giant’s first foray into this hybrid debt instrument, blending fixed-rate certainty with long-term flexibility. The move underscores TELUS’s evolving capital strategy as it navigates a landscape of rising interest rates, shifting regulatory demands, and ambitious growth targets.
The Structure: Fixed-to-Fixed with a Floating Future
The offering comprises two series:
- Series CAR (6.25% Fixed-to-Fixed): Priced at $99.965 per $100 principal, these notes offer a 6.25% initial yield until 2030. Afterward, rates reset every five years to the five-year Government of Canada bond yield plus 3.482%, but with a 6.25% floor to guard against rate declines.
- Series CAS (6.75% Fixed-to-Fixed): Priced at $99.959, these notes lock in a 6.75% yield until 2035, resetting to the same benchmark plus 3.609%, with a 6.75% floor.
Both series mature in 2055, creating a 30.25-year liability, a strikingly long tenor for TELUS. The structure balances short-term stability with long-term adaptability, aligning with the company’s need to manage debt amid uncertain rate trajectories.
Why Junior Subordinated Notes? A Strategic Play
This issuance diverges from TELUS’s prior reliance on senior unsecured notes (e.g., its $1.8B offering in February 2024). Junior subordinated debt, while subordinate to senior obligations, offers distinct advantages:
1. Capital Structure Efficiency: Credit rating agencies assigned 50% equity credit to these notes, effectively boosting TELUS’s debt-to-equity ratio. This reduces perceived leverage without issuing equity.
2. Cost Savings: The fixed-rate floors lock in current spreads, shielding TELUS from near-term rate volatility. The 6.25% and 6.75% coupons are competitive given the current 5-year Government of Canada bond yield of ~4.5% (as of April 2025).
3. Liquidity Management: Proceeds will retire higher-cost commercial paper and receivables trust obligations, lowering weighted average interest costs.
Risks and Considerations
While the offering strengthens TELUS’s balance sheet, risks persist:
- Interest Rate Sensitivity: Resets after 2030/2035 could raise borrowing costs if bond yields climb further.
- Subordination Risk: Junior status means these notes rank below senior debt in liquidation, potentially impacting investor demand during market stress.
- Economic Uncertainty: TELUS’s ability to service debt depends on sustained revenue growth. Its $20 billion annual revenue base and 20 million customer connections provide a solid foundation, but margin pressures in telecom remain a concern.
A Play for the Long Game
TELUS’s move reflects a shift toward longer-dated liabilities, a strategy mirroring peers like BCE and Rogers Communications. By extending its maturity profile (the average debt maturity for Canadian telecoms is ~10 years), TELUS reduces refinancing risks and aligns debt duration with its capital-intensive infrastructure projects.
The 50% equity credit also enhances regulatory metrics. For instance, a $1.6B issuance at 50% equity credit boosts equity by ~$800 million, improving return-on-equity ratios—a key metric for investors.
Conclusion: A Calculated Gamble with Upside
TELUS’s inaugural junior subordinated note offering is a masterclass in strategic debt management. By locking in low rates today while preserving flexibility for future rate environments, the company positions itself to fund growth in 5G, fiber expansion, and its $1.8B annual social capitalism initiatives.
While risks like interest rate spikes or credit downgrades linger, TELUS’s AA- rated balance sheet (per S&P) and dominant market position in Canada’s telecom sector mitigate these concerns. Investors should view this as a vote of confidence in TELUS’s long-term prospects, particularly as it transitions toward higher-margin healthcare and digital services (TELUS Health impacts 76 million lives globally).
In sum, the $1.6B offering isn’t just about refinancing—it’s a signal of TELUS’s ambition to scale sustainably. For investors, this blend of defensive capital structure moves and growth-oriented spending could yield dividends over the next decade.
