|By Business Wire||
|June 16, 2014 03:05 PM EDT||
Fitch Ratings believes American Tower Corporation's (AMT) plans to acquire the entire equity interests of BR Towers S.A. (BR Towers), an independent tower operator in Brazil, will not affect its 'BBB' Issuer Default Rating (IDR) and Stable Rating Outlook.
The total value of the transaction is approximately $978 million, including assumed debt and preferred stock. The acquisition of BR Towers will add, at closing, approximately 4,640 owned or exclusive rights to towers to AMT's Brazilian tower portfolio. As of March 31, 2014, AMT owned or operated 6,771 sites in Brazil. AMT anticipates upon closing that BR Towers will generate approximately $131 million in annual run rate revenues and $81 million in gross margin. The transaction is expected to close in the fourth quarter of 2014.
Although the company has not disclosed financing plans regarding the cash portion of the transaction, Fitch's assumptions incorporate that this portion of the transaction may be funded by debt. Since the end of the first quarter of 2014, AMT has paid down a substantial portion of its revolver borrowings through the issuance of mandatory convertible preferred stock, which raised approximately $583 million. Under Fitch's criteria, the mandatory convertible preferred stock is accorded full equity credit.
The ratings and Outlook reflect Fitch's expectations that AMT remains on the path to delever to levels established upon its October 2013 acquisition of MIP Tower Holdings LLC, the parent of Global Tower Partners (GTP), for $4.8 billion (including assumed debt). Owing to expectations for debt levels at the end of 2014, combined with recently increased expectations for EBITDA due to acquisitions in 2013 and 2014 and the continued strong performance of its legacy tower business, Fitch expects the company to remain on a path to reduce quarterly run rate net leverage to approximately 5.0x by the end of 2014 or early 2015.
Fitch believes the issuance of the mandatory convertible preferred stock signals the company's intent to get back into the high end of its 3x to 5x net leverage target by the end of 2014 or early 2015.
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, 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 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 will more than offset the relatively modest losses that may occur over time due to consolidation.
In Fitch's opinion, AMT has 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 LTM ending March 31, 2014, FCF (cash provided by operating activities less capital spending and dividends) was approximately $432 million. As of March 31, 2014, cash on hand approximated $333 million and unused revolver capacity was approximated $2.8 billion. Pro forma for the April 2014 Richland Properties LLC and related acquisitions and the May 2014 mandatory convertible preferred offering, but not the current transaction, cash amounted to $318 million and there was more than $3.2 billion available on its revolving credit facilities.
AMT has three revolving credit facilities: a $1 billion, 364-day revolving credit facility due in September 2014, a $1 billion facility due in January 2017, and a $2 billion facility due in June 2018. The principal financial covenants limit total debt to adjusted EBITDA (as defined in the agreements) to no more than 6.5x until Sept. 30, 2014 and 6.0x thereafter 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 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 $1.18 billion.
At the current 'BBB' level, Fitch's sensitivities do not currently anticipate developments with a material likelihood of leading to a rating upgrade.
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;
--The current transaction does not extend the time to reach the target leverage range from our initial expectations, as a result, subsequent, significant leveraging transaction that delays anticipating 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);
--'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012).