July 25, 2017 / 2:40 PM / 4 months ago

Fitch Rates Crown Castle's Notes Offering 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, July 25 (Fitch) Fitch Ratings has assigned a 'BBB-' rating to Crown Castle International Corp.'s (Crown) offering of senior unsecured notes due in 2024 and senior unsecured notes due in 2027, in each case subject to market and other conditions. Net proceeds from the offering will be used to finance the debt portion of Crown's acquisition of LTS Group Holdings LLC (Lightower). On July 18, 2017, Crown announced a definitive agreement to acquire Lightower from Berkshire Partners, Pamlico Capital and other investors for approximately $7.1 billion in cash representing an approximate 13.5x adjusted EBITDA multiple. Financing for the transaction is expected to be slightly delevering using a mix of debt and equity including Crown's recently priced offerings of $3.85 billion in common stock and $1.65 billion in mandatory convertible preferred stock (proceeds are before discounts and expenses). The common and preferred offerings are expected to close on July 26, 2017. The acquisition is expected to close at the end of 2017. Crown currently has a Fitch Long-Term Issuer Default Rating (IDR) of 'BBB-' with a Stable Outlook. KEY RATING DRIVERS Good Complementary Fit: The acquisition of Lightower with highly complementary fiber assets doubles Crown's metro fiber footprint to approximately 60,000 miles thus increasing the company's coverage to 23 of the top 25 U.S. markets. The increased scale in metro locations should expand Crown's small-cell opportunities to better leverage network assets. The acquisition follows several other recent similar fiber-based transactions by Crown including Sunesys, FiberNet and Wilcon that total in excess of $10 billion. These acquisitions have increased Crown's metro presence and strongly position the company to support wireless operators' needs to densify networks due to the growing capacity demands for 4G and 5G data services. Changing Business Mix: The acquisition also begins changing the business mix by diversifying Crown's revenues into higher churn (high-single digits), lower contractual maturity leases (weighted average four-plus years) with large enterprises, government agencies, carriers and educational institutions, which is more typical of a traditional telecom operator. Fitch estimates Lightower will generate roughly 17% of pro forma EBITDA of the combined entity. Additional material acquisitions of telecom-oriented revenue streams that further increase Crown's business mix toward telecom revenues could begin to pressure the ratings given the relatively high leverage. Strong Recurring Cash Flows: Crown's ratings reflect the strong recurring cash flows generated from its leasing operations, robust EBITDA margins and the scale of its tower portfolio. In addition, a focus on the U.S. market reduces operating risk. The tower business model provides considerable stability to operating performance and FCF growth. These characteristics have led to a lower business-risk profile for Crown than for most typical corporate credits, which has effectively offset the higher financial leverage. Leverage Expectations Mid-5x Range: Fitch expects Crown's 2017 gross leverage (absent the Lightower transaction) to be at the higher end of the 5x range. Crown has deleveraged via EBITDA growth following two major acquisitions of towers, or rights to towers since the end of 2012. These transactions include the $2.5 billion T-Mobile transaction in 2012 and the $4.8 billion AT&T Inc. transaction in 2013, which was primarily financed with equity. Leverage is slightly above our leverage expectations for a 'BBB-' rated tower company with Crown's business and financial risk profile. However, Fitch believes current levels of investment, driven by small-cell investments, will provide for future EBITDA growth that when combined with the Lightower acquisition, should drive leverage down over time to the mid-5x range in 2018. Wireless Broadband Growth: A key factor in Crown's future revenue and cash flow growth is the wireless industry's need for increasing amounts of mobile broadband wireless network capacity. Growth in 4G LTE data services is driving amendment activity and new lease-up revenues from the major operators, leading to mid-single-digit organic site-rental revenue growth prospects for 2017. Crown is active in building small-cells and distributed antenna systems, which should allow it to capture additional share. Consolidation Risk Manageable: Fitch believes that if consolidation in the U.S. wireless market were to occur, it would not have a material effect on Crown's operations. While relatively modest losses would occur, revenue growth from continued lease activity and contractual escalators would more than offset such losses over time. DERIVATION SUMMARY The U.S. wireless communications tower industry is dominated by two major players, American Tower Corporation (AMT; 'BBB'/Stable) and Crown Castle. AMT is rated one-notch higher due to lower financial leverage. A third public tower operator, SBA Communications (SBA;'b*'/Stable), with much smaller scale and much higher financial leverage, also has a somewhat sizable share of the market. Over the last couple of years the tower industry has consolidated significantly, given AMT's acquisition of GTP and Verizon's towers, Crown Castle's acquisition of AT&T and T-Mobile's towers, and SBA's acquisition of TowerCo and Mobilitie. All three have elected to become REITs, and will be required to distribute substantial amounts of cash. Tower operating businesses have high operating leverage, which leads to consistent profitability and strong FCF. This is due in large part to the small incremental cost associated with adding tenants to a tower, especially when compared to the large incremental EBITDA margin growth that results from such additions. The tower industry employs a stable business model and experiences much lower business risk than many business models within the telecommunication segment. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: --Fitch assumes revenue growth will be in the mid- to high-single digits (on a GAAP basis) in 2017. Over the next several years, Fitch expects EBITDA margins will expand further to the high-50% range; --2017 EBITDA of $2.4 billion, increasing to at least $3 billion in 2018; --Gross leverage in 2017 will be in the high-5x range declining to mid-5x range in 2018; --Crown's FCF is expected to be materially negative in 2017 and is affected by REIT required distributions as well as the use of cash for discretionary capex. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action A commitment to leverage of less than 4.7x to 4.8x could lead to a positive rating action. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action ---Developments potentially leading to a negative rating action include an increase in leverage above 5.5x for a protracted period of time due to an acquisition funded mostly by debt, further material increases in business mix away from traditional tower revenues without an accompanying decrease in financial leverage, or a change in financial policy that targets higher leverage. LIQUIDITY Strong Liquidity: Crown has meaningful cash generation, balance sheet cash, revolving credit facility (RCF) availability and a favorable maturity schedule relative to available liquidity. Cash, excluding restricted cash, was $205 million as of March 31, 2017. Liquidity is provided by an unsecured $2.5 billion RCF maturing in 2022, of which $2.2 billion was available at March 31, 2017. Crown has received funding commitments totalling approximately $7.1 billion for a new unsecured bridge facility and is expected to close on common stock and mandatory convertible preferred stock offerings on July 26 to fund the transaction. The financial covenants within Crown's unsecured credit agreement include a total net leverage ratio of 6.5x (not to exceed 7x for up to three quarters following a qualified acquisition), a senior secured leverage ratio of 3.5x (on a gross basis) and, if rated below investment grade by two of three rating agencies, consolidated interest coverage of 2.5x. Crown's FCF is expected to be materially negative in 2017 and is affected by REIT required distributions as well as the use of cash for discretionary capex. As a REIT, Crown is required to distribute at least 90% of its REIT taxable income, after the use of any net operating losses. Capex was $874 million in 2016, of which approximately $90 million was for sustaining capex, with the balance discretionary in nature. Maturity Profile: Crown's maturity profile over 2017 to 2019 has no significant maturities. 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 William Densmore Senior Director +1-312-368-3125 Committee Chairperson David Peterson Senior Director +1-312-368-3177 Date of relevant committee: July 18, 2017 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements: --Historical and projected mandatory convertible preferred stock is given 100% equity credit. Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 16 Jun 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below