Fitch Rates American Tower's Term Loan 'BBB-'; Outlook Stable
Fitch Ratings has assigned a 'BBB-' rating to American Tower's (AMT) $750 million senior unsecured term loan due 2017. The company's Long-term Issuer Default Rating (IDR) is 'BBB-' and the Rating Outlook is Stable.
Proceeds from the term loan were used to repay $632 million of borrowings on the company's senior unsecured revolving credit facility due 2017 and for general corporate purposes. The term loan has covenants that are substantially consistent with its senior unsecured revolving credit facilities.
Fitch said that the company'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, 2012. AMT also has significant operational scale provided by its large tower portfolio. This combined with favorable demand characteristics for wireless services (particularly data) translates into strong, sustainable operating performance and FCF growth.
AMT's predictable and growing revenue base is generated primarily from long-term lease contracts with national wireless operators, of which several are investment-grade. This leads to a low business risk profile.
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 US. 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 rating also reflects AMT's commitment to a net leverage target in a range of 3.0 times (x) to 5.0x. AMT's gross leverage metric was 4.4x for the LTM ended June 30, 2012 and was elevated due to acquisitions completed in late 2011. AMT's leverage metric reflects EBITDA from acquisitions from the date of closing.
In 2012, Fitch estimates AMT's gross leverage ratio will approximate 3.8x - 4.0x. This is stronger than 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 rating also takes into account AMT's Jan. 1, 2012 reorganization of its operations allowing AMT to be taxed as a real estate investment trust (REIT). As a REIT, AMT will be required to distribute required levels of REIT earnings to shareholders. Despite the required distributions, Fitch believes AMT will retain significant flexibility to manage its leverage. This is primarily due to its strong EBITDA growth prospects and the continuation in the near-term of its depreciation shield, which lowers its required distributions.
Risks reflected in AMT's ratings include the expansion of operations internationally and the potential for acquisitions. Fitch expects AMT's international revenue, about 30% of the total (24% if certain pass-through revenues are excluded) in second quarter-2012, to continue to grow over the longer term. The effect of future acquisitions on AMT's credit profile will depend on the size, timing and financing 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.
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 $482 million as of June 30, 2012.
For the LTM ending June 30, 2012, FCF (cash provided by operating activities less capital spending and dividends) was approximately $636 million. This compares favorably to FCF for 2011 of approximately $505 million. In 2012, Fitch expects AMT's free cash flow to range from $525 million to $575 million. Fitch's estimate includes a distribution ranging from $330 million to $355 million.
As of June 30, 2012, AMT had a total of $996 million available on its $1 billion senior unsecured RCF maturing in 2017, net of letters of credit, and $1 billion available on its senior unsecured RCF maturing in 2016. 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 the $1.75 billion commercial mortgage pass-through certificates which mature in 2014.