Oct 3 - Fitch Ratings has assigned a 'BB-' rating to Crown Castle International Corp.'s
(CCIC) $1.65 billion unsecured senior notes due 2023. The company intends to use the net proceeds from the notes offering, together with cash on hand and funds from its revolving credit facility, to finance its towers acquisition from T-Mobile USA, Inc. The Rating Outlook is Stable.
Crown's ratings are supported by strong recurring cash flows generated from its leasing operations, a robust EBITDA margin that should continue to increase through new lease-up opportunities, and the scale of its tower portfolio. The substantial operational scale provided by its large tower portfolio combined with favorable wireless demand characteristics should translate into sustainable operating performance and free cash flow (FCF) growth over the longer term. As a result, Crown maintains significant flexibility with prioritizing the use of its liquidity and discretionary cash flow.
Leverage pro forma for the acquisition would increase to the mid-6x range. This is materially outside of Fitch's current range for Crown's 'BB' rating.
Fitch expects Crown to de-lever through a mix of cash flow growth and debt reduction in the next 12 to 15 months after the transaction closes. This should improve credit protection measures to back within rating expectations. Fitch projects leverage to be approximately 6x or lower by the end of 2013. Any deviation from the expected deleveraging path would likely result in Fitch taking a negative rating action.
Fitch views Crown's liquidity position as solid. However, Crown is expected to use a significant portion of its liquidity to fund the acquisition. Crown has meaningful FCF generation, balance sheet cash, and favorable maturity schedule relative to available liquidity. Cash, excluding restricted cash, was $96 million as of June 30, 2012. For the LTM ending March 31, 2012, FCF was approximately $278 million. Crown spent $391 million on capital during this period with approximately $200 million allocated for land purchases, which is discretionary in nature.
For 2012, Crown expects adjusted funds from operations of approximately $850 million. The next large maturity is not until 2015 when $1.7 billion of notes come due including three tranches of securitized debt. Common stock repurchases have been scaled back, totaling $36 million for the first two quarters of 2012 compared to $193 million a year ago.
As of June 30, 2012, Crown had full availability on its $1 billion senior secured revolving credit facility maturing in 2017. Fitch expects Crown will pay down the facility post the transaction closing to restore availability under the revolver. The financial covenants within the credit agreement are more restrictive than in the past. This is evident in total net leverage ratio, which is 6.0x compared to 7.5x, and consolidated interest coverage of 2.5x compared to 2.0x. The financial leverage covenant has an additional stepdown to 5.5x in 2014. The credit agreement also has security fallaway provisions in the event CCIC achieves investment grade ratings.
What Could Trigger a Rating Action
Negative: Fitch believes Crown's leverage is outside of the current expectations for the 'BB' rating category as a result of the acquisition. Future developments that may, individually or collectively, lead to Fitch taking a negative rating action include:
--If Crown does not deleverage the company below 6x in the next 12-to-15 months; or --If Crown makes additional material acquisitions that are debt financed.
Positive: Fitch believes Crown's longer-term ratings have upward potential from further operational and credit profile improvements. In the 2015-2016 timeframe, Crown has indicated the potential for a REIT conversion. Future developments that may, individually or collectively, lead to Fitch taking a positive rating action include:
--The stability and operating leverage within its leasing operations; --Growth in broadband data leading to increased lease-up opportunities; --Maintaining less aggressive financial policies than in the past; and --If Crown continues to following the potential path of a REIT conversion and materially de-levers the company.
Fitch's ratings for Crown include:
Crown Castle International Corp. (CCIC) --IDR at 'BB'; --Senior unsecured debt at 'BB-'. Crown Castle Operating Company (CCOC) --IDR at 'BB'; --Senior secured credit facility at 'BB+'. CC Holdings GS V LLC (GS V) --IDR at 'BB'; --Senior secured notes at 'BBB-'.
Additional information is available at '
ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); --'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology Rating Telecom Companies (New York Ratings Team)