As the broad sell-off continues in high-yield telecom, a West coast money manager has recently added to its holdings of Crown Castle International. A portfolio manager at the firm argues that the $900 million in cash that the communications tower company has on its balance sheet gives it a more than sufficient cushion to support its capital expenditures and still weather the industry downturn.
Crown Castle's 10.75% notes of '11 were bid at 68 last Wednesday morning, down from the mid 80s three months ago. Anthony Klarman, telecom analyst at Deutsche Bank, attributes the decline purely to technical factors in the sector and in high-yield generally, rather than any negative news related to the company. In addition to the unusually strong cash position, Klarman points to the firm's $500 million untapped credit facility. He projects 2002 EBITDA will be $370 million--well above the $236 million Crown Castle will need to service its debt this year. Klarman currently has a strong buy on the bonds.
Tom Reedy, portfolio manager at OppenheimerFunds, will not add to his current overweight position. He says Crown Castle's bonds have recently outperformed other credits with similar fundamentals, and so are not as overvalued as they were a short time ago. He is also concerned that wireless services providers will consolidate and cut back capital expenditures, which will make a dent in earnings for the tower companies.