Crown Castle International Corp.’s (CCI - Analyst Report) recent decision to acquire privately held NextG Networks Inc. for approximately $1 billion prompted several credit rating agencies to revise the company’s ratings outlook. Yesterday, Standard & Poor's Ratings Services revised its rating outlook for Crown Castle to Stable from Positive. Crown Castle has decided to fund its proposed acquisition through debt financing. S&P argued that this decision will put further pressure on the company’s already high leveraged level.
At the end of the third quarter of 2011, Crown Castle had more than $6.94 billion (around $24.44 per share) of net debt (total debt less cash & cash equivalents). S&P further commented that the company’s credit quality is unlikely to improve enough in the next one year to withstand the higher rating of the agency. However, S&P reaffirmed that Crown Castle is currently assigned B+ rating, which is four notches into S&P’s junk territory.
Last Friday, Moody's Investors Service has given the rating of Crown Castle on CreditWatch for a possible downgrade. The rating agency’s concern remains more or less same to that of the S&P. Moody’s currently assigned a Ba2 rating on the company, which is two levels into its junk territory. However, last Monday, Fitch Ratings reiterated its BB- rating and stable outlook for Crown Castle.
NextG is the largest provider of outdoor Distributed Antenna Systems (DAS). The deal is expected to be closed by the second quarter of 2012. NextG currently has more than 7,000 DAS in operation coupled with another 1,500 nodes in its pipeline. The company also enjoys transmission rights over 4,600 miles of optic fiber cable. The proposed acquisition will enhance Crown Castle’s DAS network with more than 10,000 nodes spread across 26 U.S. metropolitan areas. However, 80% of these nodes will be located on the top 10 U.S. metropolitan areas.
DAS is rapidly becoming a complementary solution to the large wireless tower system. Using DAS network, wireless operators will now be able to get rid of the zoning restrictions and can specifically locate their respective coverage area. As demand for wireless data and video traffic is increasing day-by-day, DAS may become an important source of revenue for Crown Castle. The combo offer of large wireless towers and small-sized DAS network will position Crown Castle as a unique tower operator head on with its arch rival American Tower Corp. (AMT - Analyst Report).