Fitch Affirms Crown Castle's IDR at 'BB'; Outlook Revised to Positive

Fitch Ratings has affirmed the Issuer Default Ratings (IDR) of Crown Castle International Corp. (Crown) and its subsidiaries at 'BB'. In addition, Fitch has affirmed the long-term debt ratings of Crown and its subsidiaries as follows:

Crown Castle International Corp. (CCIC)

--IDR at 'BB';

--Senior unsecured debt at 'BB-'.

Crown Castle Operating Company (CCOC)

--IDR at 'BB';

--Senior secured credit facility at 'BB+'.

CC Holdings GS V LLC (GS V)

--IDR at 'BB';

--Senior secured notes at 'BBB-'.

The Rating Outlook has been revised to Positive from Stable.

KEY RATING DRIVERS

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.

The Outlook has been revised to Positive, as the company has made progress in 2014 on delevering following two major acquisitions of towers, or rights to towers, in the last two years. 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, which was primarily financed with equity. Fitch expects Crown's gross leverage to be in the 5.3x to 5.4x range at the end of 2014, which is within the 'BB+' range of Fitch's expectations for leverage for a tower company with Crown's business and financial risk profile.

Fitch recognizes that material event risk is currently present in the tower industry, primarily owing to Verizon Communications Inc. (Verizon) public statements that it would entertain the sale of its towers under the right terms and conditions. Should such a transaction come to pass, and Crown is the acquirer, Fitch will evaluate the company's funding strategy and financial expectations at that time, and their effect on the rating. In the absence of a transaction--if there is no sale or another tower operator acquires Verizon's towers--Fitch would review and likely upgrade Crown's IDR one-notch to 'BB+'.

The rating also incorporates expectations that beginning in December 2014, Crown will pay out a higher proportion of cash flow to its shareholders as it increases 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 of the level of payout relative to previous expectations, but slows 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.

Fitch's existing ratings and outlook have reflected expectations for delevering to occur over time, primarily as a result of EBITDA growth. Growth stemming from the contractual nature of business, plus escalators in its contracts, provide for natural delevering over time that is not dependent on debt repayment. Fitch believes Crown will have sufficient cash generation to reinvest in its business to sustain mid-single-digit growth, even with the higher dividend, mitigating concerns regarding the ability to sustain growth. In Fitch's view, the reduced free cash flow (FCF) will materially reduce its ability to fund inorganic growth. As inorganic opportunities occur, Fitch will evaluate the willingness of the company to partly fund transactions with equity in the context of achieving its leverage target.

A key factor in future revenue and cash flow growth for Crown, as well as the rest of the tower industry, is the growth in wireless network capacity needed to meet demand for mobile broadband services. Growth in 4G services will drive amendment activity and new lease-up revenues from the major operators, leading to at least midsingle-digit growth prospects for the next couple of years.

Fitch expects Crown to delever primarily through cash flow growth over the course of 2014 and 2015. Fitch projects leverage based on full-year EBITDA to be in the 5.3x to 5.4x range by the end of 2014, which will be very strong for the rating category.

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 $239 million as of Sept. 30, 2014. For the latest 12 months (LTM) ended Sept. 30, 2014, FCF was approximately $393 million. Crown spent $751 million on capital expenditures during this period with a significant portion allocated for land purchases, which is discretionary in nature.

CCOC had drawn $354 million on its $1.5 billion senior secured revolving credit facility as of Sept. 30, 2014. The revolving credit facility matures in November 2018. The financial covenants within the credit agreement include a total net leverage ratio of 5.5x (following a stepdown in March 2014), and consolidated interest coverage of 2.5x.

For 2014, Crown expects adjusted funds from operations of approximately $1.4 billion. Crown's maturity profile is manageable, with no significant legal maturities for the last quarter of 2014 or 2015 . In 2015, anticipated repayments for securitized debt are expected under the terms of $250 million of tower revenue notes and WCP securitized notes with a current face value of $264 million.

Crown converted to a REIT for tax purposes on Jan. 1, 2014. The company's total cash distribution in 2014 will approximate $470 million. Fitch believes the company will have flexibility--albeit at a reduced level owing to the distribution increase--to manage its leverage as a REIT, as its $2.2 billion net operating loss carryforwards will allow it to manage required REIT distributions.

RATING SENSITIVITIES

Positive: Crown Castle's leverage on a run rate basis (the third quarter of 2014 at 5.5x) is right at the high end of Fitch's 5.0x to 5.5x leverage range expected for a 'BB+' rating, and Fitch expects leverage to be in the 5.3x-5.4x range by the end of 2014. Fitch considers event risk to be high in the tower industry at present, but if the prospects for a material transaction diminish, Fitch would consider upgrading Crown Castle's IDR to 'BB+'.

Negative: Future developments that may, individually or collectively, lead to Fitch taking a negative rating action include 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.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014);

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' (Dec. 23, 2013);

--'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726863

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=913616

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Contacts:

Fitch Ratings
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Senior Director
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Fitch Ratings, Inc.
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Chicago, IL 60602
or
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