Rating agency Standard and Poor's (S&P) lowered its outlook
Crown Castle International
) - one of the largest independent tower companies - by one notch.
The downgrade from positive to stable was based on the company's
recent agreement to acquire the rights of T-Mobile's 7200 wireless
towers for $2.4 billion.
S&P has affirmed Crown Castle's corporate credit rating
outlook to B+/Stable from B+/Positive as the rating firm believes
that the T-Mobile transaction would increase its leverage by eight
times to that of 2012 EBITDA (Earnings before interest, tax,
depreciation and amortization). However, S&P expects Crown
Castle's debt to EBITDA ratio to be 7.5 by the end of 2013.
S&P has confirmed that it could raise Crown Castle's rating
if it can substantially reduce its debt-to-EBITDA ratio to 7 or
lower, which will depend on the company's ability to generate an
EBITDA margin of 13% and above. On the flip side, if the company
continues with its aggressive share repurchase program instead of
repaying its debt, the rating agency could lower its rating.
CrownCastlewill benefit from the T-Mobiles tower deal as it will
significantly increase its tower leasing revenue with the addition
of new tenants and increase in contractual rent, which in turn will
increase the potential for EBITDA growth. The longer term
contracts, high contract renewal fees and lower carrier flexibility
to terminate contracts provide tower industry with solid revenue
visibility. Additionally, the very low maintenance capital
expenditure of tower industries will help the company generate high
The unprecedented surge in data demand has spurred wireless
Verizon Communication Inc.
) towards network coverage expansion. We believe the data surge
will be profitable for Crown Castle as additional tenants will
demand space on their existing towers.
Furthermore, the company's $1 billion revolving credit facility
coupled with good cash flow generation will enhance its ability to
access the capital markets. Although the company has not declared a
specific financial plan to acquire the T-mobile assets, higher
usage of debt could increase its leverage ratio, which will lead to
further rating revisions.
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
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.