Fitch Rates American Tower's Debt Offering 'BBB'; Outlook Stable
CHICAGO -- August 14, 2013
Fitch Ratings has assigned ratings to American Tower Corporation's (AMT) debt
--Proposed senior unsecured notes due 2019 and 2024 rated 'BBB';
--Senior unsecured $1.5 billion revolving credit facility due 2018 rated
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facility due 2016 has been withdrawn as it has been replaced by the facility
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
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
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
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
--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
Rating Telecom Companies
Criteria for Rating U.S. Equity REITs and REOCs
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John C. Culver, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
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