CrownCastleInternational ( CCI ),
one of the largest independent tower companies, has decided to
issue $1.65 billion of senior notes, due in 2023, to finance the
recent $2.4 billion deal with T-Mobile USA. The long-term notes
will carry an interest rate of 5.25% and will be issued at 100% of
the face value. The company plans to accumulate $1.631 billion of
fund after allowing issuance discounts, commissions and offering
Recently, Crown Castle and T-Mobile USA, a unit of Deutsche
Telecom AG entered into a definitive agreement through which Crown
Castle will acquire the exclusive right to lease and operate
approximately 7,200 wireless towers of T-Mobile USA for a weighted
average term of nearly 28 years. The deal is expected to be closed
in the fourth quarter of 2012, subject to customary regulatory
approval and will make it the largest tower company in U.S.
surpassing American Tower Corporation ( AMT
The company plans to use the proceeds collected through the note
offering coupled with the existing cash and funds from its existing
revolving credit facility to finance the deal. Nevertheless, if the
T-mobile deal lapses or ends up with Crown Castle paying less for
acquiring lesser number of towers, then the Houston-Texas based
company expects to use the remaining net proceeds for general
corporate purpose or repayment of other debts.
CrownCastlehas a substantially leveraged balance sheet. At the
end of the second quarter of 2012, the company had approximately
$8.34 billion (around $29.4 per share) of net debt (total debt less
cash & cash equivalents), while it had approximately $96.2
million of cash and marketable securities on its balance sheet at
the end of the second quarter of 2012. The new offering will
further expand its debt position approximately to $10 billion thus
pressurizing its leverage ratio.
Recently, Rating agency Standard and Poor's (S&P) lowered
its outlook on Crown Castle to B+/Stable from B+/Positive on the
back of expected increase in leverage ratio from the T-Mobile
transaction. Now S&P has assigned a B- issue level along with
'6' recovery ratings on the notes, which indicate that in case of
default there is a negligible chance of recovering the principal.
Moody's Investor Service also assigned a B1 rating for the new
bonds, citing high degree of credit risk. Negative sentiments of
the rating agency forced the company to issue the notes at almost
3.63% higher than similar maturity government bonds.
Although Crown Castle expects to garner about $125-$130 million
in adjusted fund from operations (AFFO), before financing cost, in
2013 from the T-Mobile deal, we believe, very high level of
indebtedness may reduce its ability to generate sufficient amount
of cash to meet its debt obligations on time.
We are maintaining our long-term Outperform recommendation on
Crown Castle International Inc. However, the company currently
retains a Zacks #3 Rank, implying a short-term Hold rating.
CROWN CASTLE (CCI): Free Stock Analysis Report
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