Switzerland’s Sunrise Communications sells tower unit, most of proceeds to go to de-leveraging

By Paul Deckelman

New York, May 24 – Sunrise Communications Group AG announced an agreement on Wednesday to sell a portfolio of 2,239 telecommunications towers scattered throughout Switzerland for CHF500 million – with the bulk of the proceeds slated to go towards deleveraging the Zurich-based telecom company’s capital structure, with an eye toward eventually gaining an investment-grade credit rating.

“With the proceeds, we can accelerate deleveraging and move faster to achieving a potentially investment-grade credit rating,” the company’s chief executive officer, Olaf Swantee, said on a conference call with analysts outlining the planned transaction.

Swantee said that such a ratings boost would give Sunrise “a stronger financial foundation and sustainability moving forward.”

Sunrise’s chief financial officer, André Krause, said the company will use CHF 450 million of the deal’s proceeds to reduce its outstanding term loan debt.

As of the end of the 2017 first quarter on March 31, Sunrise had outstanding CHF1.36 billion of term loan debt which it entered into in February 2015 via its Sunrise Communications Holdings SA financing subsidiary, along with CHF 500 million of 2 1/8% senior secured notes due 2022, which it sold around the same time, also through that same funding entity.

With total quarter-end obligations of CHF 1.875 billion, including CHF 15 million of financial leases, and with CHF 242 million of cash and equivalents on its balance sheet, net debt at the quarter’s end stood at CHF 1.633 billion.

The company’s leverage ratio of net debt as a multiple of adjusted EBITDA stood at 2.7 times. Those debt and leverage figures were unchanged from the end of fiscal 2016 on Dec. 31.

Term loan debt targeted

Krause told the analysts on Wednesday’s conference call that Sunrise expects that paying down the term loan debt by using most of the tower deal’s proceeds would drive that pro forma 2016 net debt figure down to around CHF 1.2 billion and would accordingly lower the pro forma 2016 leverage ratio to around 2.1 times from 2.7 times currently.

Krause said that Sunrise was updating its 2017 guidance to take the transaction’s impact into account and would increase its shareholder dividend and revise its dividend policy accordingly.

He said that the company now projects adjusted EBITDA for the year of between CHF 577 million and CHF 592 million, down somewhat from its original guidance of CHF 595million to CHF 610 million. Although adjusted EBITDA will decline, pro forma for completion of the tower deal, the sharp drop in overall and net debt will still result in the considerably lower leverage level.

Capital spending will increase to between CHF 255 million and CHF 295 million from original capex estimates of CHF 225 million to CHF 265 million, as the company plans to spend CHF 30 million of the deal proceeds not being allocated to term loan repayment into one-time capital spending, accelerating its investments into network, fiber partnerships and shops, as well as covering transaction-related costs.

Sunrise said that it plans to increase its dividend to somewhere between CHF 3.90 and CHF 4.10 per share upon meeting its guidance from a previously planned CHF 3.45 to CHF 3.55 per share.

Going forward, the company – which has targeted returning at least 65% of its equity free cash flow to investors – will continue to do so, but plans to increase that to 85%, once its reported leverage ratio of net debt over adjusted EBITDA falls to 2.0 times or below, which Krause said would be the new leverage ratio going forward over the medium term.

“We believe that a 2.0 times leverage target will secure a mid-term investment-grade rating for the company and thus put the company on a very solid financial foundation,” the CFO said.

Sunrise plans to sell its recently carved out Swiss Towers AG subsidiary to a consortium led by Cellnex Telecom SA and including Swiss Life Asset Managers and Deutsche Telekom Capital Partners, in a transaction that it expects to close in four to six weeks, around the July 1 mark, pending all of the necessary regulatory approvals as well as the conclusion of transitional services agreement between Sunrise and the buyers, as well as a build-to-suit agreement under which Sunrise would be subcontracted to build new telecom towers for the purchasers.

While the purchasers will be acquiring the passive infrastructure of the towers – the steel and concrete structures themselves, all of the active mobile network infrastructure remains with Sunrise, enabling the company “to focus even more on improving the quality of its mobile services for its customers,” Sunrise said in its statement.

© 2015 Prospect News.
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