US Equity Issue: Crown Castle’s US$4bn equity and mandatory convertible bond
When Crown Castle International emerged as the winning bidder on a US$4.85bn, all-cash purchase for AT&T’s wireless tower portfolio in October it was secured with a US$3.45bn bridge loan. But accumulating further debt was not an option for the company.
“We were already at the high end of our target leverage, so the acquisition financing had to be leverage-neutral,” said Crown Castle CFO Jay Brown. “Leverage was a major consideration ahead of planned conversion into a REIT next year.”
Morgan Stanley, Bank of America Merrill Lynch, JP Morgan and Barclays delivered a US$4bn fundraising through US$3.06bn of common stock and US$977.5m in mandatory convertible bonds, together the second-largest equity raising by a non-financial US company post-credit crisis and the fourth-largest raising ever.
Moody’s declared in advance that the AT&T sale would be credit negative for acquirers. CCI’s hefty equity financing avoided the predicted downgrade. “The incremental debt is modest enough to preserve the rating and maintain the stable outlook,” the ratings agency said, with CCI holding firm at Ba2.
To help drive overall sizing and pricing, the two were initially sized at 36m shares and US$750m of MCBs. The mandatory was increased by US$100m, before the exercise of both greenshoes took the equity to 41.4m shares and the mandatory convertible bond to US$977.5m.
A planned US$1.40 annual dividend following conversion to REIT status proved an important hook, plus the higher yield on the mandatory helped boost demand.
The fundraising represented 14% of CCI’s market value, but discounting was minimal. A two-day marketing effort culminated in a full-sized equity placement at US$74, representing just a 1.1% discount to last sale and 2.5% below pre-launch levels. CCI held its value, trading in excess of US$75 per share weeks after pricing.
Pricing of the mandatory was even more impressive, with the 4.5% dividend and 25% conversion premium coming at aggressive ends of talk, and the yield representing the tightest ever pick-up over common at the time – a full dividend pass-through was instrumental in achieving this.
In all, almost 90% of the institutions that met with the company participated.
For Crown Castle, whose net leverage remained at just under six times adjusted Ebitda, the high end of a four to six times target, the AT&T purchase was transformational. The purchase of 9,708 towers increased its US footprint by nearly one-third to 40,000 towers, and provided an avenue to grow earnings in the long term.
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