Fitch Ratings has said that it believes American Tower Corporation’s (AMT) planned tower acquisitions in Brazil and Nigeria will have a minimal effect on its credit profile, given plans to finance the transactions within its leverage targets.
AMT plans to acquire two tower portfolios in Brazil from TIM Celular. The total value of the TIM transaction is approximately $1.2 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. The transaction is expected to close in mid-2015.
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. The Airtel acquisition is also expected to close in mid-2015. The acquisition represents AMT’s launch of operations in Nigeria.
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 current leverage targets. Fitch expects AMT to get back to within the high end of its 3x to 5x net leverage target to approximately 5x, on a run rate basis, by early 2015.
Key Ratings Drivers
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 debt level expectations at the end of 2014, combined with EBITDA as a result of 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 5x by early 2015.
Fitch believes the May 2014 issuance of the mandatory convertible preferred stock (net proceeds of approximately $583 million) signals the company’s intent to get back to the high end of its 3x to 5x net leverage target by 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, 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 will more than 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 $525 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, multi-currency facility due in January 2020 and a $2 billion 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.