CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed American Tower Corporation's (AMT) 'BBB' Issuer Default Rating (IDR) and 'BBB' rating for the company's senior unsecured notes and credit facilities. The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings and Outlook reflect Fitch's expectations that AMT remains on the path to delever to approximately 5x (net leverage) by early 2015 on a quarterly run-rate basis, and to delever further over the course of 2015. This path was set out upon AMT's October 2013 acquisition of MIP Tower Holdings LLC - the parent of Global Tower Partners (GTP) for $4.8 billion (including assumed debt). Fitch's expectation incorporates anticipated debt levels at the end of 2015, combined with EBITDA contributions from acquisitions in 2014 and 2015, and AMT's continued strong performance in its legacy tower business.
In the first half of 2015, AMT plans to close on tower acquisitions in Brazil and Nigeria at a total cost of approximately $2.25 billion. AMT has not disclosed financing plans regarding the transactions; however, the company has stated it will finance the transactions in a manner consistent with its previously announced leverage targets (long-term leverage targets incorporate net debt to EBITDA of 3x to 5x). Fitch believes AMT's May 2014 issuance of mandatory convertible preferred stock (net proceeds of approximately $583 million) signaled the company's continued support for its delevering goals.
In Brazil, AMT plans to acquire two tower portfolios from TIM Celular S.A. (TIM), which is a wholly-owned subsidiary of Tim Participacoes S.A., with a total value of approximately $1.1 billion at current exchange rates. The first portfolio consists of approximately 5,240 towers and the second portfolio consists of approximately 1,240 towers. The second portfolio is subject to certain third-party preemptive acquisition rights. The acquisitions will add substantially to AMT's Brazilian tower portfolio. AMT anticipates upon closing that the acquired towers will generate approximately $171 million in annual run rate revenues and $75 million in gross margin.
In Nigeria, AMT plans to acquire more than 4,800 towers from a subsidiary of Bharti Airtel Limited (Airtel) for approximately $1.05 billion in consideration. AMT anticipates the acquired towers will generate approximately $255 million in annual run rate revenues and $91 million in gross margin. The acquisition represents AMT's launch of operations in Nigeria.
Tower 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, several of which 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 an earlier stage of development than in the U.S.
U.S. wireless consolidation is not expected to have a material effect on AMT's operations. Revenue growth from continued lease activity (supported by wireless data growth) and contractual escalators in the U.S. market are expected to offset the relatively modest losses that may occur over time due to consolidation.
In Fitch's opinion, AMT has a strong liquidity position supported by its free cash flow (FCF), cash on hand, and availability on its revolving credit facilities. Operationally, cash flow generation should remain strong. For the latest 12 months (LTM) ending Sept. 30, 2014, FCF (cash provided by operating activities less capital spending and dividends) was approximately $500 million. As of Sept. 30, 2014, cash on hand approximated $296 million and unused revolver capacity was approximately $3.1 billion. Of the cash balance, approximately $218 million was held by foreign subsidiaries.
AMT has two revolving credit facilities: a $1.5 billion facility due in January 2020 and a $2 billion multi-currency RCF due in June 2018. The principal financial covenants limit total debt-to-adjusted EBITDA (as defined in the agreements) to no more than 6.0x, and senior secured debt-to-adjusted EBITDA to 3.0x for the company and its subsidiaries. If debt ratings are below a specified level at the end of any fiscal quarter, the ratio of adjusted EBITDA to interest expense must be no less than 2.5x for as long as the ratings are below the specified level. The next material maturities are in 2015 and total approximately $0.9 billion.
At the current 'BBB' level, Fitch does not currently anticipate any developments that could likely lead to an upgrade of the rating at this time.
A negative rating action could occur if:
--Operating performance falls short of expectations of at least mid-single-digit organic growth combined with margin pressure;
--Recently announced acquisitions do not extend the time to reach the target leverage range from Fitch's initial expectations, as a result, a subsequent, significant leveraging transaction that delays anticipated delevering could lead to a downgrade.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014);
--'Generic Ratings Navigator Companion' (Nov. 11, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Generic: Ratings Navigator Reference File