Wireless tower companies such as SpectraSite and Crown Castle International Corp. have shown their faces in the debt markets over the past few weeks and despite the sub-sector's heavy debt loads and interdependence on the competitive wireless carrier market, some market players feel that the prospects for tower companies are improving. "We think it's going to be a dynamic next 12 to 18 months [for wireless towers]," said David Marsh, v.p. and high-yield analyst who covers wireless towers at research, institutional brokerage and investment banking firm Friedman, Billings, Ramsey Group. "You are going to see a lot of capital markets activity from these guys," he added.
Bank loan activity has picked up for towers with repricings and refinancings. CIBC World Markets and Credit Suisse First Boston came out with a pricing amendment for SpectraSite last week to bring the company's $450 million "B" loan down 100 basis points to LIBOR plus 3%, bankers said. This was after J.P. Morgan and Morgan Stanley wrapped up a $1.2 billion credit for Crown Castle that priced a refinanced and increased $1 billion "B" loan at LIBOR plus 31Ž2% with call protection 102, 101. Marsh noted there are four major public wireless tower companies--SpectraSite, Crown Castle, American Tower Corp. and SBA Communications Corp. Marsh said he expects SBA to hit the bank market within the next few months. He noted that American Tower is in an even better position to tap the market, but he would not guess on when it might do so. Calls to American Tower and SBA officials were not returned by press time.
While some bankers think the SpectraSite repricing is aggressive, others said SpectraSite's lower leverage makes the lower spread suitable. "It's a good time for SpectraSite to redo their bank deal...They look to be in the strongest position at this point," Marsh said, adding that SpectraSite's total debt-to-trailing 12-month EBITDA is 6.6 times, while Crown Castle's multiples are 8.6 times.
Marsh said wireless tower companies had fallen out of favor with the market between the second and fourth quarter of last year because a lot of people became concerned with the financial health of the carriers. But since that time the carriers, who rent tower space from the companies, have improved, he added. "We are bullish on the [wireless tower] group because these are very strong cash-flow generating assets." The tower companies attain the bulk of their business by renting out towers for wireless service carriers to place their antennae upon, Marsh explained.
But risks in the industry are still apparent. Investors demanded a little more juice late last month on the Crown Castle deal with an increase in pricing and the added call protection. "Investors should be aware of growth in free cash flow and improvements in debt-to-EBITDA ratios," said Michael Tsao, an analyst at Standard & Poor's. If those are not favorable for a couple of quarters, then investors should become concerned again, he added, noting that he does not see it as much of an issue going forward. CIBC, CSFB, J.P. Morgan and Morgan Stanley bankers did not return calls. SpectraSite and Crown Castle spokespeople did not return calls. --Judy McDermott