Fitch Rates Crown Castle's Senior Unsecured Notes 'BB-'; Outlook Stable

Tue Apr 1, 2014 9:38am EDT

(The following statement was released by the rating agency) CHICAGO, April 01 (Fitch) Fitch Ratings has assigned a 'BB-' rating to Crown Castle International Corp.'s (Crown) proposed $500 million senior unsecured note offering. Crown has an IDR of 'BB' and the Outlook is Stable. Crown intends to use the net proceeds from the offering to refinance its existing $500 million of 7.125% senior unsecured notes due 2019. KEY RATING DRIVERS Crown's ratings are supported by the strong recurring cash flows generated from its leasing operations, the robust EBITDA margin that should continue to increase as a result of new lease-up opportunities, and the scale of its tower portfolio. Crown's primary focus on the U.S. market, compared with seeking growth in emerging markets, reduces operating risk. These factors lend considerable stability to cash flows and lead to a lower business risk profile than most typical corporate credits. A key factor in future revenue and cash flow growth for Crown, as well as the rest of the tower industry, is the growth in wireless network capacity needed to meet demand for mobile broadband services. Growth in 4G services will drive amendment activity and new lease-up revenues from the major operators, leading to at least midsingle-digit growth prospects for the next couple of years. Fitch expects Crown to deleverage through a mix of cash flow growth and debt reduction over the course of 2014. This should improve credit protection measures back within rating expectations. Fitch projects leverage based on full year EBITDA to be in the 5.5x to 5.7x range by the end of 2014. Crown materially expanded its tower portfolio in December 2013 when it closed on the $4.83 billion acquisition of exclusive rights to lease and operate towers from AT&T, Inc. Approximately $3.95 billion of the transaction was funded by proceeds from common and preferred equity offerings completed in October 2013, with the remainder funded by revolver drawings and cash on hand. Incremental term loans totaling $700 million were then used to repay a portion of the revolver. Crown has meaningful FCF generation, balance sheet cash, and favorable maturity schedule relative to available liquidity. Cash, excluding restricted cash, was $223 million as of Dec. 31, 2013. For the year, FCF was approximately $658 million. Crown spent $568 million on capital during this period with a significant portion allocated for land purchases, which is discretionary in nature. CCOC had drawn $374 million on its $1.5 billion senior secured revolving credit facility as of Dec. 31, 2013. The revolving credit facility matures in November 2018. The financial covenants within the credit agreement include a total net leverage ratio of 6.0x, and consolidated interest coverage of 2.5x. The financial leverage covenant has an additional step-down to 5.5x in March 2014. For 2014, Crown expects adjusted funds from operations of approximately $1.5 billion. Contractual maturities for 2014 and 2015 are $101 million and $100 million, respectively. Crown converted to a real estate investment trust (REIT) for tax purposes on Jan. 1, 2014. The company has indicated that the total cash distribution in 2014 will approximate $470 million. Fitch believes the company will have flexibility to manage its leverage as a REIT over the next several years, as its $2.2 billion net operating loss carry-forwards will allow it to manage required REIT distributions. RATING SENSITIVITIES Positive: Longer-term, Crown may consider lowering its leverage target, which could lead to an upgrade. In Fitch's view, if the company operated in the 5.0x to 5.5x range, an upgrade could be considered. Negative: 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 by year-end 2014; or --If Crown makes additional material acquisitions that are debt financed. Contact: Primary Analyst John C. Culver, CFA Senior Director +1-312-368-3216 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Bill Densmore Senior Director +1-312-368-3125 Committee Chairperson Michael Weaver Managing Director +1-312-368-3156 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 5, 2013); --'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' (Dec. 12, 2012); --'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis here Rating Telecom Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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