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Rating Action:

Moody's rates Crown Castle's new senior notes B1, upgrades credit facilities to Ba2 and senior secured notes to Baa2; outlook stable

03 Oct 2012

Approximately $1.65 billion of new debt rated

New York, October 03, 2012 -- Moody's Investors Service has assigned a B1 rating to Crown Castle International Corp.'s ("CCIC" or the "company") proposed $1.65 billion senior unsecured notes due 2022. New issue proceeds are expected to be used to partially fund the company's $2.4 billion acquisition of the rights to lease and operate up to 7,180 towers from T-Mobile USA, Inc., a subsidiary of Deutsche Telekom, AG, anticipated to close later this year. As part of this rating action, Moody's upgraded the ratings on the senior secured credit facilities at Crown Castle Operating Company ("CCOC") to Ba2 from Ba3 and the rating on the secured notes at CC Holdings GS V LLC ("CC Holdings") to Baa2 from Baa3 to reflect the expected change in the composition of the capital structure. Moody's affirmed CCIC's Corporate Family Rating (CFR) and Probability of Default Rating (PDR), both at Ba2, as well as the SGL-1 Speculative Grade Liquidity Rating. However, Moody's cautioned that the SGL-1 rating could experience downward pressure to the extent the company draws $750 million or more under the revolver to partially fund the T-Mobile transaction. The rating outlook is stable.

Since the transaction is neutral to CCIC's credit profile, the CFR and PDR remain unchanged. However, because this financing significantly increases senior unsecured debt at the CCIC parent entity (the most junior debt in the capital structure) relative to the debt residing at the operating subsidiaries, the secured obligations at CCOC and CC Holdings were upgraded by one notch as they will now absorb a lesser proportion of the losses in a distressed scenario under Moody's Loss Given Default Methodology. The assigned ratings are subject to review of final documentation and no material change in the size, terms and conditions of the transaction as advised to Moody's.

Ratings Assigned:

..Issuer: Crown Castle International Corp.

$1.65 Billion Senior Notes due 2022 -- B1 (LGD-5, 89%)

Ratings Upgraded:

..Issuer: Crown Castle Operating Company

$1.0 Billion Senior Secured Revolver due September 2013, to Ba2 (LGD-4, 59%) from Ba3 (LGD-4, 68%)

$500 Million Senior Secured Term Loan A due January 2017, to Ba2 (LGD-4, 59%) from Ba3 (LGD-4, 68%)

$1.6 Billion Senior Secured Term Loan B due January 2019, to Ba2 (LGD-4, 59%) from Ba3 (LGD-4, 68%)

..Issuer: CC Holdings GS V LLC

$946 Million 7.75% Senior Secured Notes due May 2017, to Baa2 (LGD-2, 11%) from Baa3 (LGD-2, 14%)

Ratings Affirmed:

..Issuer: Crown Castle International Corp.

Corporate Family Rating -- Ba2

Probability of Default Rating -- Ba2

Speculative Grade Liquidity Rating -- SGL-1

$789 Million 9% Senior Notes due January 2015 -- B1, LGD assessment revised to (LGD-5, 89%) from (LGD-6, 93%)

$498 Million 7.125% Senior Notes due November 2019 -- B1, LGD assessment revised to (LGD-5, 89%) from (LGD-6, 93%)

RATINGS RATIONALE

CCIC's Ba2 CFR reflects the company' s position as the leading independent wireless tower operator in the US with a strong operational profile and the ability to generate significant free cash flow despite the recent resumption of share repurchase activity. The Ba2 CFR also reflects the significant proportion of revenue that CCIC derives under contractual agreements with the largest US wireless carriers. This affords visibility and stability in the company's revenue stream as evidenced by the 10% year-over-year revenue growth witnessed in the twelve-month period ended June 30, 2012, against the backdrop of a weakening macroeconomic environment. Moody's believes that the fundamentals and growth trends for the wireless tower sector are likely to remain favorable through the next several years. We believe this allows the business model to manage with moderately more leverage than traditional telecommunications companies.

Nonetheless, CCIC's Ba2 rating continues to be constrained by the high absolute debt load, which will increase as a result of this note offering and subsequent borrowings under its credit facilities to finance the T-Mobile transaction. We estimate that the resulting debt balances will increase pro forma total debt to EBITDA (includes Moody's standard adjustments and T-Mobile LTM EBITDA) to around 7.7x from about 7x (as of June 30, 2012). While this is somewhat higher than the 7.5x downgrade trigger that we have previously articulated, Moody's expects industry fundamentals to remain strong and leverage to trend lower and return to a range of 6.8x to 7.3x by year end 2013 from a combination of EBITDA expansion and repayment of revolver borrowings.

As a result of the T-Mobile transaction, Moody's believes it will now take CCIC until mid-2015 to target adjusted total debt to EBITDA leverage below the 6x range, with the ability to further de-lever to below 5x by 2016, barring another sizable debt-financed acquisition. Since the soon-to-be acquired T-Mobile properties have a lower average tenancy ratio of 1.6 tenants per tower, compared to an average tenancy of 3 for CCIC's towers, the company's EBITDA margins will be pressured over the near term. However, the T-Mobile towers have capacity to add at least one tenant and provide additional network services without incremental capital expenditures, which will lead to higher EBITDA and cash flow generation per tower once more wireless carriers are added. We believe this will take one to two years.

CCIC's Ba2 rating also incorporates the company's exposure to technology network shifts such as the pending shutdown of the iDen network by Sprint and possibility of further carrier consolidation in the US. This risk is offset in the near term by the firm contracts that CCIC has with the largest wireless carriers and by increasing revenue from the current upgrade cycle as carriers install new cell site equipment and augment their existing equipment associated with the rollout of fourth generation (4G)/LTE wireless networks across their markets.

Over the next twelve months, Moody's expects CCIC will exhibit very good liquidity (SGL-1) supported by free cash flow generation of around $400 million, covenant compliance and access to a $1 billion secured revolving credit facility maturing January 2017 that is currently undrawn. Moody's notes that a substantial drawdown of $750 million or more under the revolver to partially fund the T-Mobile acquisition could result in downward pressure on the SGL-1 liquidity rating. To the extent revolver capacity is utilized, we expect CCIC to refrain from stock repurchases and use free cash flow to repay revolver debt, and/or refinance any remaining outstanding amounts over the twelve months following closing of the transaction to restore revolver availability. CCIC has no material debt maturities until 2015 when roughly $1.4 billion of debt obligations contractually come due.

In rating CCIC's debt instruments, Moody's has taken a forward look with respect to the composition and specific levels of debt at the company's various legal entities. Since CCIC is a first-tier parent holding company and the debt issued at this entity does not benefit from upstream operating company guarantees, it is structurally subordinated to the debt residing at CCOC and CC Holdings, two wholly-owned operating subsidiaries. Given that this financing will be issued at CCIC, the one-notch upgrade on the CCOC senior secured credit facilities to Ba2 (LGD-4, 59%) and the one-notch upgrade on secured notes at CC Holdings to Baa2 (LGD-2, 11%) reflect the lower loss absorption that these classes of debt will now sustain relative to the increased liabilities at CCIC in a distressed scenario under Moody's Loss Given Default Methodology. To the extent the secured revolving credit facility residing at CCOC is drawn to fund the T-Mobile purchase, it is likely that permanent debt financing issued at a different legal entity will be used to refinance this debt. This may cause further changes in the composition of the capital structure and lead to near-term ratings volatility among the individual instruments.

Rating Outlook

The rating outlook is stable, reflecting expectations of continued EBITDA and cash flow expansion that will support improvement in the company's credit profile and leverage metrics over the rating horizon. CCIC's solid operating performance, visible revenue growth via a significant backlog of contractual rents and increasing customer demand are expected to maintain the stable rating outlook.

What Could Change the Rating - Down

The ratings may face downward ratings pressure if weakening industry fundamentals or a return to more aggressive financial policies (e.g., return of capital to shareholders via share repurchases) result in the following Moody's adjusted key credit metrics on a sustained basis: total debt to EBITDA approaching 7.5x, (EBITDA-Capex)/Interest trending under 1.5x and free cash flow to adjusted total debt in the low single digits.

What Could Change the Rating - Up

Despite the increase in pro forma leverage resulting from the pending T-Mobile acquisition, Moody's expects the de-leveraging trend to continue, and further upward ratings migration would be dependent upon CCIC allocating a significant portion of free cash flow generation towards absolute debt reduction. Quantitatively, upwards rating pressure may develop if CCIC manages its capital structure to the following Moody's adjusted key credit metrics on a sustained basis: total debt to EBITDA trending towards 6x, (EBITDA-Capex)/Interest exceeding 2x and free cash flow to adjusted total debt in the high single digits.

The principal methodology used in rating Crown Castle International Corp. was Global Communications Infrastructure Industry Methodology published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

With headquarters in Houston, Texas, Crown Castle International Corp., through its wholly-owned operating subsidiaries, is the largest independent operator of wireless tower assets in the United States. The firm derives approximately 88% of its revenue by leasing site space on its approximately 24,315 towers and distributed antenna systems (DAS) networks in the US and Australia to wireless service providers, with the remaining revenue derived from its services business, which provides network services relating to sites or wireless infrastructure for customers. Revenue was approximately $2.2 billion for the twelve months ended June 30, 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Gregory A Fraser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Crown Castle's new senior notes B1, upgrades credit facilities to Ba2 and senior secured notes to Baa2; outlook stable
No Related Data.
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