American Tower Corp.’s (AMT) recent decision to acquire Global Tower Partners ("GTP") for $4.8 billion has impelled Moody’s rating agency to lower the company’s rating outlook to negative from stable while maintaining Baa3 ratings on its senior unsecured debts.
GTP currently owns 5,400 domestic and 500 international towers mostly in Costa Rica. Moreover, it controls over 9,000 domestic sites, which mainly include rooftop assets. Thus, American Tower believes that acquiring those assets through debt financing will not only give the company access to a significant tower base in urban locations but will also generate around $345 million and $270 million in revenues and gross margin, respectively, by 2014.
Last month, American Tower entered into an agreement with NII Holdings Inc. (NIHD) to purchase 2,790 Brazilian and 1,666 Mexican towers for $413 million and $398 million, respectively. These acquisitions will help the company to consolidate its position in the highly lucrative Latin American markets, which is mainly dominated by America Movil S.A.B. de C.V. (AMX) and Telefornica SA (TEF).
American Tower is also on the verge of acquiring 8,000 wireless towers of Tower Vision, a privately-held Indian wireless tower operator, for nearly $572 million.
At present, American Tower requires nearly $6.2 billion to fund its entire tower acquisition program. Meanwhile, the company exited second-quarter 2013 with only $462.7 million in cash and marketable securities and around $8.8 billion in outstanding debt on its balance sheet.
American Tower’s series of acquisitions will not only surpass its 5.0x net debt/EBITDA target (set by Moody’s rating agency) but will also exhaust its revolving credit facility. Thus, American Tower’s mounting debt accounted for the slashed outlook by Moody’s.
Hence, to restore to Moody’s stable outlook, American Tower needs to successfully execute and integrate both its GTP and NII tower deals and also remain below the 5.0x net debt/EBITDA target. In order to bring its debt/EBITDA target below Moody’s benchmark level, the company needs to repay $200 million of debt every quarter for the next two years.
American Tower currently has a Zacks Rank #3 (Hold).
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