Fitch Rates American Tower's Debt Offering 'BBB'; Outlook Stable
As of June 30, 2016, outstanding borrowings on AMT's revolving credit facilities and term loan totalled approximately $3.9 billion. AMT has a Fitch Issuer Default Rating (IDR) of 'BBB' with a Stable Rating Outlook.
KEY RATING DRIVERS
Strong FCF and Margins: AMT's ratings are supported by the financial flexibility provided by its strong FCF and its high EBITDA margin, which has been consistently above 60% in recent years. The tower business model translates into strong, sustainable operating performance and FCF growth, aided by the company's significant scale and the favorable demand characteristics for wireless services (particularly data).
Stable Growth Model: AMT is expected to continue to post strong FCF, generate mid - to high-single-digit organic growth and maintain stable margins. Tower revenues are predictable, and growth is provided by contractual escalators embodied in long-term lease contracts and there are strong prospects for additional business. The tower industry is benefiting from wireless carriers continued investment in their fourth generation (4G) networks to meet rapidly growing demand for mobile broadband services.
Stable Outlook: Although leverage is elevated, Fitch expects net leverage to return to 5x or below within a 12-24-month period. Fitch expects AMT's net leverage to be approximately 5.1x (pro forma for current 2016 acquisitions) and 4.9x at the end of 2016 and 2017, respectively. Leverage is currently elevated primarily as a result of AMT's acquisition of rights to certain towers, and some outright purchases, from Verizon Communications Inc. (Verizon) in a transaction totaling approximately $5 billion.
2016 Acquisition: In the second quarter of 2016, AMT closed its acquisition of a 51% stake in Viom Networks Limited (Viom), a tower operator in India, for approximately $1.1 billion in cash plus assumed debt. At some point in the future, AMT will contribute its existing tower portfolio in India to Viom, which Fitch expects will increase its stake in Viom to above 60%. Fitch believes that growth in both EBITDA and FCF will allow AMT to fund the acquisition with debt without varying from its year-end leverage path.
Consolidation Risk Manageable: U. S. wireless consolidation, if it were to occur, would not have a material effect on AMT's operations. Revenue growth from continued lease activity and contractual escalators in the U. S market would more than offset the relatively modest losses occurring over time due to consolidation.
International Exposure: Similar wireless service demand trends are occurring internationally, with wireless data services at an earlier stage of development than in the U. S. Excluding pass-through revenues, the company's international operations generated approximately 33% of total property revenues in the second quarter of 2016.
--Consolidated revenue grows to more than $5.7 billion, based on expectations for property revenue to be at the mid-point of company guidance of $5.66 billion. In addition, Fitch has incorporated approximately 3/4 of a year of revenue from the Viom acquisition and portion of the year-one property revenue from the Tanzania acquisition in 2016. In 2017, revenue grows just over 7% based on the full-year effects of the Viom and Tanzania acquisitions. Thereafter revenue grows in the 4%-5% range due to contractual escalators and new-business growth.
--EBITDA margins decline slightly in 2016 due to the lower margins associated with acquired properties.
--Capital spending of approximately $750 million in 2016, which increases moderately through 2018, before declining slightly in 2019.
--Cash taxes remain modest, at less than $100 million in 2016 and increase modestly thereafter.
--Moderate stock repurchases as net leverage under 5x is reached, with further deleveraging arising from EBITDA growth (rather than debt repayment).
Positive: At the current 'BBB' level, Fitch does not currently anticipate near-term developments that could lead to an upgrade of the rating.
Negative: A negative rating action could occur if operating performance falls short of expectations of at least mid-single-digit organic growth combined with margin pressure, or if a significant transaction, or share repurchases, results in expectations for net leverage sustained above 5x for longer than an 18-24 month period.
In Fitch's opinion, AMT has a strong liquidity position supported by its FCF, cash on hand and availability on its revolving credit facilities. Operationally, cash flow generation should remain strong. For the LTM ending June 30, 2016, FCF (cash provided by operating activities less capital spending and dividends) was approximately $813 million. As of June 30, 2016, cash approximated $410 million and unused revolver capacity was approximately $2.8 billion. Of the cash balance, approximately $295 million was held by foreign subsidiaries.
AMT has two revolving credit facilities: a $2 billion, multi-currency facility due in January 2021 and a $2.75 billion revolving credit facility due in June 2019. The principal financial covenants limited total debt/adjusted EBITDA (as defined in the agreements) to no more than 6.0x. The covenants limit senior secured debt/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.
Debt maturities during 2016 and 2017 are nominal.