CHICAGO - (Business Wire) Fitch Ratings has assigned Issuer Default Ratings (IDRs) and long-term debt ratings to Crown Castle International Corp. (CCIC) and its subsidiaries as follows: CCIC
--IDR 'BB-';
--Senior Unsecured Debt 'B+'.
Crown Castle Operating Company (CCOC)
--IDR 'BB-';
--Senior Secured Credit Facility 'BB+'.
CC Holdings GS V LLC (GS V)
--IDR 'BB-';
--Senior Secured Notes 'BBB-'.
The Rating Outlook for CCIC and its subsidiaries is Positive. Approximately $3.4 billion of debt is affected by Fitch's action.
CCIC's ratings are supported by the strong recurring cash flows generated from its leasing operations, the robust EBITDA margin that should continue to increase and the considerable scale of its tower portfolio, thus leading to a much lower business risk profile. The strong industry fundamentals and expected growth in demand for wireless services allow for sustainable growth in operating performance and discretionary cash flow. Accordingly, Fitch expects the tower industry, including CCIC, to greatly benefit from new amendments and lease up opportunities as operators enhance network capabilities to support both its 3G and 4G networks. Operators have aggressively subsidized smartphones, netbooks and laptop cards to drive the rapid growth in broadband data applications to stimulate the need for additional enhancements to their networks.
CCIC has substantially improved its refinancing risk and liquidity position since the beginning of 2009 due to almost $2.9 billion of new debt issuance to address the nearer-term refinancings associated with the Global Signal and Towers LLC securitizations. In addition, CCIC has limited discretionary spending during 2009 to improve its liquidity. Consequently current maturities through 2011 are relatively nominal and consist of annual term loan amortization payments of 1% and amortization requirements associated with the Crown Castle senior secured notes, series 2009-1. However, CCIC does have interest rate swap agreements with settlement dates ranging from December 2009 to November 2011. The value of this obligation, which is based on the five-year LIBOR swap rate, was $282 million at the end of the second quarter of 2009.
In addition, CCIC has a combined $3.3 billion of secured 30-year tower revenue notes with anticipated refinance date (ARD) provisions that in the event the issues are not repaid in full by the ARD, all excess cash flow generated by the Towers LLC securitized entity will be trapped. The first ARD is in June 2010 for $1.7 billion of secured notes. The second ARD date is in November 2011 for $1.6 billion of secured notes. While CCIC has indicated its intentions to refinance the debt before the ARD, if an ARD was triggered, Fitch believes the company could generate sufficient cash flow from its other entities that CCIC could adequately service its expense obligations and invest in necessary capital requirements.
CCIC has a secured credit facility with $635 million remaining on a term loan that matures in 2014 and a $188 million revolving facility due January 2010 that was undrawn as of the second quarter 2009. CCIC has considerable cushion under the credit agreement financial maintenance covenants, which includes consolidated CCOC leverage, consolidated CCIC interest coverage and debt service coverage ratios for the securitization entities. Outside of a cash trap situation, which Fitch views as unlikely at this time, CCIC has significant flexibility in moving cash between subsidiaries. CCIC's credit agreement also effectively limits new incremental secured debt, absent a refinancing, at its operating entities.
Cash was $177 million as of the second quarter of 2009. Free cash flow for the first six months of 2009 was approximately $200. CCIC has shown significant flexibility in prioritizing the use of its discretionary cash flow depending on its strategic initiatives. While management has indicated that further material debt reduction is not likely, Fitch expects CCIC will improve its credit profile and naturally delever through increased cash generation. CCIC has indicated a commitment for a targeted leverage ratio within the 5 times (x)-7x range and interest coverage of at least two times. Fitch believes CCIC will likely operate toward the lower end of the targeted range based on expectations for growth in cash flow. Consequently, the Positive Outlook reflects Fitch's leverage expectations, that on a run rate basis, leverage will improve to approximately 5.5x by the end 2010. Since the company has made significant progress on refinancing its capital structure and preserving its liquidity during 2009, Fitch believes CCIC over time will begin to increase the level of land purchases and share repurchases funded through discretionary cash flow. Purchases of land and stock for the first six months of 2009 were $6 million compared with $145 million a year ago.
The 'BBB-' rating for the secured debt at GS V reflects the superior recovery and over-collateralization of the debt at the operating company level. The ratings for the secured credit facility at CCOC reflect the lower collateral support from its pledged assets as well as expected benefits from the over-collateralization of the secured assets at Towers LLC, GS V and Global Signal Holdings III LLC. The ratings of the unsecured debt at the holding company level reflect the structural subordination and limited recovery prospects within the capital structure. As the capital structure evolves through refinancing activities at Towers LLC, Fitch believes over time this could lead to improved recovery prospects and ratings upgrade for the unsecured debt at CCIC. The distinction in rating differences between Fitch's existing structured and new corporate debt ratings reflects the structural enhancements with the CMBS issuances, including the protection of interest payments during a bankruptcy process.
Additional information is available at 'www.fitchratings.com'.
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