CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned ratings to American Tower Corporation's (AMT) debt as follows:
--Proposed senior unsecured notes due 2019 and 2024 rated 'BBB';
--Senior unsecured $1.5 billion revolving credit facility due 2018 rated 'BBB'.
The 'BBB' rating on AMT's senior unsecured $1 billion revolving credit facility due 2016 has been withdrawn as it has been replaced by the facility due 2018.
The Rating Outlook remains Stable.
Proceeds from the debt offering are expected to reduce outstanding revolver borrowings, fund the acquisition of towers in Brazil and Mexico from NII Holdings, Inc. (NII) and for general corporate purposes. The NII acquisition will occur in two separate transactions and the initial closing under each transaction is anticipated to occur in the fourth quarter of 2013. The two transactions total approximately $811 million.
KEY RATING DRIVERS
AMT's ratings are supported by the financial flexibility provided by its strong free cash flow (FCF). The ratings are also supported by its high EBITDA margin, which was 63% for the last 12 months (LTM) ending June 30, 2013. Other key ratings factors include the favorable demand characteristics for wireless services (particularly data) which translate into strong, sustainable operating performance and FCF growth. AMT's large tower portfolio provides significant operational scale.
AMT's business risk profile is low. Revenues are predictable and contractual escalators combined with strong prospects for additional business provide for growth. Revenues are generated primarily from non-cancellable long-term lease contracts with national wireless operators, of which several are investment-grade. AMT, and the tower industry as a whole, are benefiting from wireless carriers expanding their fourth generation (4G) networks to supply rapidly growing demand for mobile broadband services. Similar trends are occurring internationally with wireless data services at a much earlier stage of development than in the U.S. As a result, Fitch expects these dynamics to more than offset the effects of recent and potential future wireless operator consolidation on AMT's results.
The ratings also reflect AMT's commitment to a net leverage target in a range of 3.0x to 5.0x. AMT's gross leverage metric was 4.3x for the quarter ended June 30, 2013 on an annualized basis, and down slightly from 4.4x in the previous quarter.
Fitch estimates AMT's gross leverage ratio, excluding the effects of the NII transactions, will decline to approximately 4.2x at the end of 2013, owing to expectations for revenue growth in the low teens and a relatively stable EBITDA margin of approximately 64%. Including financing for the NII acquisition, but excluding EBITDA from NII, Fitch estimates year-end 2013 leverage could approximate 4.4x. Fitch believes the company will operate within or slightly below the low-to-mid-4x level that Fitch believes may be a reasonable range for the rating category for AMT's business and financial risk profile.
The ratings also take into account AMT's real estate investment trust (REIT) status. Fitch believes AMT will retain significant flexibility to manage its leverage as a REIT even though it will be required to distribute required levels of REIT earnings to shareholders. In addition, the 'BBB' rating is consistent with other Fitch-rated REITs that own niche property types and have net debt to recurring EBITDA in the 5x to 5.5x range.
Risks reflected in AMT's ratings include the expansion of operations internationally and the potential for acquisitions. Fitch expects AMT's international revenue, about 33% of the total (27% if certain pass-through revenues are excluded) in second quarter of 2013, to continue to grow over the longer term. The effect of future acquisitions on AMT's credit profile will depend on the size, timing, financing and operational cash flows of such acquisitions. Fitch believes that AMT would consider the use of equity to maintain a relatively stable credit profile in the event it entered into an agreement to acquire a sizeable tower portfolio.
Expected U.S. wireless consolidation is not expected to have a material effect on AMT's operations. AMT has disclosed that where Sprint and recently acquired Clearwire are located on the same sites, the revenue generated is approximately 1% of total revenues. Similarly, the overlapping sites in the recently completed T-Mobile USA and MetroPCS combination generate approximately 1% of revenues. Revenue growth from continued lease activity and contractual escalators in the U.S market will more than offset the relatively modest losses that may occur over time due to consolidation.
Fitch views AMT's liquidity position as strong. This is due chiefly to its balance sheet cash, meaningful FCF generation and favorable maturity schedule relative to available liquidity. Cash, excluding restricted cash, was $448 million as of June 30, 2013.
For the LTM ending June 30, 2013, FCF (cash provided by operating activities less capital spending and dividends) was approximately $438 million. In 2013, Fitch estimates AMT's FCF will be in the $625 million to $675 million range.
As of June 30, 2013, and net of letters of credit, AMT had a total of $670 million available on its $1 billion senior unsecured RCF maturing in 2017 and $1.498 billion available on its senior unsecured RCF maturing in 2018. The principal financial covenants limit total debt to adjusted EBITDA (as defined in the agreements) to 6.0x and senior secured debt to adjusted EBITDA to 3.0x. The ratio of adjusted EBITDA expense must be no less than 2.5x. The next material maturity consists of $600 million of senior unsecured notes due in 2015.
At the current 'BBB' level, Fitch's sensitivities do not currently anticipate developments with a material likelihood leading to a rating upgrade.
A negative rating action could occur if:
--AMT operates at the high end of its target range for an extended period of time;
--There is a change in financial policy targeting higher leverage;
--The company enters into a material leveraging transaction and leverage is not reduced to the low to mid 4x range within a 12 to 18 month period.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012);
--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb. 26, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Rating Telecom Companies
Criteria for Rating U.S. Equity REITs and REOCs