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Investing.com -- Today, Moody’s Ratings announced that it has affirmed the Baa3 senior unsecured debt rating of Crown Castle (NYSE:CCI) Inc., a leading owner of wireless towers in the U.S. However, the outlook for the company has been changed from stable to negative. The same rating action also affirmed the REIT’s Prime-3 commercial paper (CP) rating, (P)Baa3 senior unsecured shelf rating, and (P)Ba1 subordinate shelf and preferred shelf ratings.
On March 13th, Crown Castle revealed its plan to sell its Fiber segment for $8.5 billion. The transaction involves selling its fiber solutions business to Zayo Group Holdings, Inc., and its small cell business to EQT (ST:EQTAB) Active Core Infrastructure Fund. The completion of this transaction is expected in the first half of 2026, pending regulatory approvals and closing conditions. Crown Castle intends to use the proceeds from the sale to repay debt and buy back stock under a proposed $3.0 billion stock repurchase program.
The rating affirmations reflect Crown Castle’s predictable operating cash flow from long-term leases, solid fixed charge coverage, and good liquidity. However, the change in outlook is due to potential deterioration in the REIT’s leverage and coverage metrics. This is a result of the management’s revised leverage policy and limited deleveraging with the proceeds from the fiber sale. As a pure-play U.S. tower landlord, Crown Castle plans to maintain leverage in the 6.0-6.5x range, which is higher than the current target of approximately 5.0x. The negative outlook is also influenced by the risk of the transaction not being completed as proposed.
Crown Castle’s Baa3 senior unsecured rating is reflective of its position as a leading owner of wireless towers in the U.S., and its long-term leases with a high-quality tenant base, good fixed charge coverage ratio, and sound liquidity. However, the REIT’s weak effective leverage and net debt to EBITDA ratios, significant share of leased rather than owned properties, substantial tenant concentration, and the risk that technological evolution could reduce the demand for wireless towers are other material credit considerations.
Despite the Sprint contract cancellations on the REIT’s revenue, due to Sprint’s merger with T-Mobile, the impact is expected to significantly diminish after 2025. Organic revenue growth, driven by rent escalators and increased tenant density, is expected to contribute to Crown Castle’s revenue and income growth.
At the end of 2024, the REIT’s top three tenants accounted for 74% of its rental revenues. However, the long weighted average lease term of 6 years mitigates tenant concentration risk. Over the longer term, Crown Castle, like its peers, could face competition from substitute technologies that reduce demand for towers and other wireless infrastructure.
The REIT’s net debt to EBITDA ratio, as adjusted by Moody’s on an LTM basis, was close to 6.5x at year-end 2024 and could deteriorate by 0.5-1.0x over the next 12-18 months depending on the proportion of sales proceeds used to repay debt. Crown Castle’s fixed charge coverage metric will also weaken to the low to mid 3x range in the same period from about 3.7x at year-end 2024. Crown Castle maintains good liquidity supported by substantial availability on its $7 billion unsecured revolver and proven access to debt capital.
A rating upgrade is unlikely over the next 12-18 months given the direction of the outlook. Ratings could be upgraded if the REIT were to maintain Net Debt/EBITDA at 5.5x or lower on a sustained basis and fixed charge coverage above 4.5x. Strong liquidity and predictability of cash flows over the long term would also be important considerations.
The ratings could be downgraded if operating performance deteriorates significantly or net debt/EBITDA is sustained above 6.5x or fixed charge coverage drops below 3.5x, including Moody’s operating lease adjustment. Deterioration in liquidity or adverse operating trends such as shorter lease terms or lower contractual escalators could also result in a downgrade.
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