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Fitch: American Tower's Brazil Acquisition Has No Effect on Rating
|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
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
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
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).
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CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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