OREANDA-NEWS. Fitch Ratings believes Crown Castle International Corp.'s (Crown) proposed acquisition of Quanta Fiber Networks, Inc. (Sunesys) for \$1 billion in cash will not affect its current 'BB' Issuer Default Rating or Positive Rating Outlook.

Crown has agreed to acquire Sunesys, a wholly owned subsidiary of Quanta Services, Inc., in a transaction expected to close by the end of the year. Sunesys is a fiber services provider that owns or has rights to nearly 10,000 miles of fiber in major metropolitan areas. The business is expected to generate approximately \$80 million to \$85 million of gross margin and incur approximately \$20 million in general and administrative expenses in the first year of Crown's ownership. Strategically, the acquisition complements Crown's rapidly growing small cell network business by providing significant additional fiber for small cell deployments. On a pro forma basis, Crown would own or have access to 16,000 miles of fiber.

Fitch believes Crown intends to fund the transaction in a leverage neutral manner, with the transaction funded at least in part through proceeds from asset sales or equity financing. Crown is currently exploring the sale of its 77.6% stake in CCAL, its Australian subsidiary, but no agreement has been announced to date.

Crown's ratings are supported by the strong recurring cash flows generated from its leasing operations, the robust EBITDA margin that should continue to increase over time as a result of new lease-up opportunities, and the scale of its tower portfolio. Crown's primary focus on the U.S. market, compared with seeking growth in emerging markets, reduces operating risk. These factors lend considerable stability to cash flows and lead to a lower business risk profile than most typical corporate credits.

Crown's Rating Outlook is currently Positive, given progress made on deleveraging following two major acquisitions of towers, or rights to towers, since the end of 2012. These transactions include the \$2.5 billion T-Mobile transaction in 2012, which was largely debt financed, and the \$4.8 billion AT&T Inc. transaction in 2013, which was primarily financed with equity. Fitch expects Crown's 2015 gross leverage to be in the low 5x area, which is within the 'BB+' range of Fitch's expectations for leverage for a tower company with Crown's business and financial risk profile.

In December 2014, Crown began paying out a higher proportion of cash flow to its shareholders as it increased its distribution to \$3.28 per share, or approximately \$1.1 billion annually, from \$1.40 per share, or approximately \$470 million annually. The payout represents an acceleration relative to previous expectations but will slow future distribution growth. In addition, the change reduces the rate at which net operating loss carryforwards are used to manage required real estate investment trust (REIT) distributions.

Crown has meaningful cash generation, balance sheet cash, revolving credit facility availability and a favorable maturity schedule relative to available liquidity. Cash, excluding restricted cash, was \$240 million as of March 31, 2015. For the latest 12 months (LTM) ended March 31, 2015, FCF after dividends was approximately \$98 million. Crown spent \$842 million on capital expenditures during this period, of which approximately \$90 million were sustaining capital expenditures, with the balance discretionary in nature.

CCOC had \$1.37 billion available on its \$2.23 billion senior secured revolving credit facility as of March 31, 2015. The revolving credit facility matures in November 2018. The financial covenants within the credit agreement include a total net leverage ratio of 5.5x, and consolidated interest coverage of 2.5x.

For 2015, Crown expects adjusted funds from operations of approximately \$1.45 billion. Crown's maturity profile is manageable; in 2015, anticipated repayments for securitized debt are expected under the terms of \$250 million of tower revenue notes and \$254 million (face value) of WCP securitized notes. Crown intends to offer new tower revenue notes to repay certain existing tower notes and to raise proceeds for general corporate purposes.

RATING SENSITIVITIES

Positive: An upgrade is likely in the near term given expectations for gross leverage to be in the low 5x range by the end of 2015.

Negative: Future developments potentially leading to a negative rating action include an increase in leverage above 6x for a protracted period of time due to an acquisition funded mostly by debt, or a change in financial policy targeting higher leverage.