Telus Corporation - Capital Structure Management

TELUS CORPORATION : CAPITAL STRUCTURE MANAGEMENT

The Telus case that is discussed gives an insight into an issue that is regularly faced by organization . Telus has accumulated huge debts as a result of acquiring ClearNet . As a result of the huge debt , the firm is facing issues relating to poor bond rating from rating agency . The debt arises from a various sources such as high competition within the market , technology disruptions within the industry , low organic growth , misplaced priorities in capital budgeting or overtly deregulated industry.

Two issues arise from high debt levels . First would be the issues relating to employee management . Telus may have to let go staff in order to reduce salary and wages . The second and more impactful issue would be the poor rating Telus would receive from the rating agency .( Moody’s bond rating ) . This would further affect the bond pricing and eventually the equity and debt .

The way to go about dealing with the situation relies on how the management perceives the issue in the long run . Also , the company has faced many employee related issues that have accrued from the debt issues . In the past , CEO’s have been replaced for poor performance and management decisions as in the case of the BCE subsidiary .

The case further provides a comprehensive outlook of how rating agencies rate securities and other financial situations of organizations . Ratings provided are not an indication of surety . Ratings are just an opinion as opposed to a recommendation .

One way Telus can reduce their debt situation is by offering more equity . Equity can be reduced at lower rates in exchange for lower / no voting rights . This can provide an avenue for the company to lower their outstanding debts while at the same time maintain sizeable control over the firm . The lower price