Friedman analyst says American Tower upside potential outweighs downside risk

By Ronda Fears

Nashville, Tenn., April 30 - Friedman Billings Ramsey reiterated its buy recommendation on American Tower Corp. debt after the company posted a narrower loss than expected Tuesday.

"We feel that the upside potential continues to outweigh the downside risk in the notes," said David Marsh, associate high-yield analyst at Friedman, in a report Tuesday.

Marsh said he prefers American Tower's 9.375% senior notes due 2009 at current trading levels, due to the higher current yield and yield to worst they provide, and the pari passu ranking in the company's capital structure to the converts.

But he has a buy recommendation on the three converts (Caa1/B-), as well, noting he believes the enterprise value of American Tower and its assets would ultimately provide public debtholders with a par recovery in the worst of situations.

The company's first quarter EBITDA declined 1.6% sequentially to $74.8 million, and Marsh said he reduced his forecast for 2002 EBITDA to $337.2 million from $340 million.

Interest coverage improved in the quarter from year-end 2001, he noted, with EBITDA covering interest expense 1.11 times.

"Liquidity appears to remain adequate to fund the business plan to free cash flow positive," Marsh said, noting that American Tower ended first quarter with $77.1 million in cash and restricted cash and $505 million in available borrowings under its domestic revolving credit facility.

"We estimate that AMT had approximately $50.8 million in negative free cash flow in 1Q02, and forecast that the company will burn through approximately $117 million through the remainder of fiscal 2002, before becoming free cash flow breakeven in 1Q03," Marsh said.

"Therefore, we believe that cash and available borrowings will be sufficient to fund the company's business plan."

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