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American Tower Corporation (AMT)
Cowen Technology, Media & Telecom Conference
May 29, 2013 3:30 pm ET
Leah Stearns – Vice President of Investor Relations and Capital Markets
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Thanks for having me.
I thought we’d start off with something that seems very topical right now, which is interest rate over the last week or so the 10-year Treasury’s interest rate seems to be going up and it seems to be having an impact not on just your stock, but other tower stock and others in telecom services world. Can you remind us what impact interest rates do you have on your business and just broadly how you think about the moving interest rates and how we should think about that as it relates to American Tower?
Sure. We completed probably the largest refinancing opportunity that we had in the near-term earlier this year with respect to our securitization refinancing. And so we don’t have any material maturities coming up until 2015 when we have about $600 million through a senior unsecured note. Everything else beyond that over the next year or so is primarily tied to our bank facilities. And so, 2018 is probably the first large maturity profile that we’ll have to address beyond 2015. And, as I look at the capital structure with respect to floating interest rate exposure, around 10% of our current interest rate is floating based.
So, pretty much long-term fixed rate that is the fundamental basis of our capital structure and the average duration of that capital structure is about 7 years.
That’s very limited.
One of the other ways as I think, people think about interest rates on the towers is multiple pay, so when you think about all the M&A which has taken place in the sector, a lot of that is obviously debt financed, and the ability to pay high multiple comes with the assumption that you could have a low interest rate on that debt, is that somewhat of an issue. Is that something that we should be concerned about and maybe walk us through what happened with your ability to get cheap capital or cheap debt particularly as the interest rates do go up, has that changed at all?
We really take a long-term deal when we evaluate assets from a M&A perspective, specifically with respect to the long-term capital structure of any acquisition. So, while low interest rates have provided for very attractive asset evaluations within the sector, given the fact that we are an investment bank corporate and I think we have fairly consistent access to the capital market. As we’ve demonstrated in the past, I don’t see a significant shift in our ability to finance growth over the long-term coming on the like.
So, from our perspective I don’t think that there is a material pressure to our overall cost of funding to grow the business because in fact, we’ve funded the lot of our growth over the past couple of years with internally generated cash as well as some increase leverage but for the most part, that’s imbalanced.
We haven’t financed all of our growth with that.
One of the other things that we’ve noticed, you’ve mentioned for example access to capital market and it seems like there has been a shift over the last year to in terms of tower companies across the sector being more administer or focused on secured debt versus unsecured debt, can you talk about how you guys think about choosing one over the other and how that might impact interest rate?
Sure, obviously secured debt provides a very low cost this year. We refinanced $1.8 billion in the secured market bringing down the average cost of that facility by 300 basis points to just over 2.6%, so it’s a huge win for us from an overall cost to debt perspective, but we do view that segment of the capital markets as being complement to our overall capital structure and strategy. We don’t view it as our primary source of funding. We primarily utilize the senior unsecured market. We complement that with some money from bank facilities and then obviously the securitization was part of that.
So I think if we were more if our leverage was higher as our peers have used secured debt primarily to fund their growth, I think that’s obviously one strategy, we think that we have more consistent access to capital by having more balanced approach to have.
So to that point if you did gear up, if want to take up leverage beyond the target three to five times, and you’ve talked about how if the right M&A opportunity came along you might be interested in doing that particularly depending on how accrued if it is, and you’re suggesting that one way you’d potentially be able to do would be the use of secured debt to kind of take that leverage higher?
We could but really our objective is to keep it as a complement, it wouldn’t be to purely utilize that structure, so we’d like to keep 20% to 25% of our capital structure in the secured market, and so that’s really where we are today, and so if you were to acquire assets obviously that creates some capacity, but I wouldn’t expect that’s a primary vehicle funding that acquisition would be through secured lending.