Crown Castle launches $1.2 billion loan amendment with 50 bps interest rate increase

By Sara Rosenberg

New York, Sept. 9 - Crown Castle International Corp. launched its proposed amendment of its restricted group operating company's $1.2 billion credit facility to lenders on Tuesday, which includes increasing the size of the term loan B by $601 million to $1 billion, extending the tenor of the term loan B to Sept. 30, 2010 from March 15, 2008, reducing the revolver commitment to $350 million from $493.8 million and designating its UK subsidiary a restricted group subsidiary.

J.P. Morgan Securities Inc. and Morgan Stanley Senior Funding Inc. are co-lead arrangers and joint bookrunners on the deal.

"Most of the terms and conditions of this deal are identical to the existing facility," said Jessica Kearns, managing director at J.P. Morgan Securities, during the lender call.

However, there are a few changes, such as increased pricing by 50 basis points on all three tranches of the credit facility and an addition to the security package.

The $601 million add-on to the term loan B, as well as the existing $399 million B loan, will now be priced at Libor plus 325 basis points. The downsized revolver and the existing $296 million term loan A will now be priced at Libor plus 250 basis points.

Pricing on the pro rata tranches is grid based, fluctuating in connection with the company's total leverage ratio. If leverage is above 4.5x than pricing is Libor plus 275 basis points, if its above 4x than pricing is Libor plus 250 basis points, if its above 3.5x than pricing is Libor plus 225 basis points, if its above 3x than pricing is Libor plus 200 basis points and if its equal to or below 3x than pricing is Libor plus 175 basis points.

The security package regarding the U.S. and Australian assets will remain the same with a perfected first priority interest in all tangible and intangible assets, excluding real estate. "With the U.K. being rolled in, we're going to have a typical security package for a foreign subsidiary, which is 66% of the stock in that entity," Kearns said.

Mandatory prepayments will remain the same under the amended credit agreement, which includes 100% of the net proceeds of the incurrence of certain indebtedness, 100% of the net proceeds of any sale of certain assets and 50% of excess cash flow for any fiscal year.

Financial covenants that include maximum leverage ratio, minimum interest coverage ratio, minimum debt service coverage ratio and minimum fixed charge coverage ratio will also be unchanged. "[It's the] exact same type of covenants as well as the exact same levels from the existing deal," Kearns explained.

Of the $601 million tack-on, $54.2 million will be used to repay credit facility debt at the U.K. subsidiary, $236.4 million will be used to repay the 9% guaranteed notes at the U.K. subsidiary, $303.4 million will be used to pay a dividend to Crown Castle International and $7 million will be used for other purposes.

In order for the amendment to pass there needs to be a unanimous vote by existing B loan lenders on extending the term of the B loan, a unanimous vote by existing B loan lenders to pre-approve the company's ability to prepay the term loan A without creating a prepayment event, a majority vote by tranche to allow for the tack-on to share in the existing facilities collateral package and a majority vote overall to allow for the company to pay as a dividend a portion of the tack-on proceeds to Crown Castle International for future public debt security repurchases.

Responses are due from lenders on Sept. 23, documentation will be distributed to lenders on Sept. 24, posting of final documentation will take place on Oct. 2 and closing and funding is slated for Oct. 3.

"The decision that we've made to do this today is opportunistic but it really does follow the trend [of] interest savings that we've accomplished to date," company officials said in regards to the refinancing.

"It is our overwhelming goal to reduce the interest burden and leverage on the company and improve the credit statistics and rating of the company going forward. This would extend the maturities and optimize our opportunity to refinance high yield notes as they become callable next summer. We have approximately $900 million callable next year mostly in the summertime and we certainly are in the mode of wanting to reduce our interest expense and compress the credit spread as much as possible between now and then. And we think this certainly is an important part of the process to do that."

Over the past couple of years, Crown Castle has managed to achieve positive free cash flow, margin expansion through revenue growth and significant reductions in operating costs, reduced reliance on services, reduced working capital requirement and capital expenditures, and a meaningful reduction in interest expense, Benjamin Moreland, senior vice president, chief financial officer and treasurer, pointed out during the call.

For example, in 2001 free cash flow was negative $551 million and in 2002 it was negative $68 million. However, in 2003 free cash flow is projected at positive $85 million and in 2004 it is projected at positive $118 million.

Minimal required capital expenditures were $680 million in 2001 and $277 million in 2002. Projected capital expenditures for 2003 are $125 million and projected capital expenditures for 2004 are $80 million.

Annual interest expense, pro forma for the elimination of the 12¾% notes, has been reduced to date by $85 million since the second quarter of 2002.

And leverage has declined as well. "On a net debt and preferred basis we're at around 81/2x today," Moreland said. "We will be at around close to 8x by the end of the year including our preferreds."

When the issue of potential ratings on the transaction and potential upgrades of ratings came up during the question and answer session, officials responded: "We've met with both Moody's and S&P in the last month and discussed this transaction in detail. And, I certainly wouldn't venture to speak for them or their outlook on our business. I would only say that I think they were both favorably disposed towards the rolling up of the U.K. in the restricted group, getting access to that cash flow for the bondholders and the simplification of the capital structure. But I wouldn't really want to venture kind of where they're going to come out right now."

Crown Castle is a Houston-based company that owns, operates and manages wireless communications sites and broadcast transmission networks, and provides network design, radio frequency engineering, site development and other services.

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