Fitch Ratings has assigned
Fitch has also assigned a final rating of 'BBB-' to A1 Towers' senior unsecured debt.
The assignment of final ratings follows the spin-off of A1 Towers from
A1 Towers' ratings continue to reflect its highly visible cash flow profile supported by long-term inflation-linked contracts with its strong anchor tenant TAG and third parties. A1 Towers has a leading market position in its largest market,
The rating benefits from a one-notch uplift above the company's 'bb+' Standalone Credit Profile (SCP) given strategic incentives for parent
Key Rating Drivers
High Initial Leverage: We expect A1 Towers' Fitch-defined EBITDA net leverage at around 7.6x in 2023 following the spin-off and long-term debt financing. This is above the downgrade sensitivity of 7x. However, strong EBITDA margins, contracted revenue growth and a shareholder commitment to not pay dividends until 2026 should contribute to good deleveraging capacity. We expect leverage to fall below 7x, in line with the rating, over the next two years. AMX is expected to consolidate A1 Towers and has a demonstrated record of maintaining a conservative financial policy.
Visible Cash Flows: A1 Towers has an eight-year contract with TAG, which automatically extends by a further eight-plus-eight years on renewal on an 'all-or-nothing' basis. The contract includes inflation protection with an 85% of CPI escalator capped at 3%. Given the need for network densification in
Parental Support Rating Uplift: Fitch rates A1 Towers under its Parent and Subsidiary Linkage (PSL) Criteria; AMX holds 56.55% of
'Low' Legal/Operational Incentives: We view the legal and operational incentives for AMX to support A1 Towers as 'Low'. This reflects a lack of legal guarantees or cross defaults issued by the parent and limited competitive advantage or operational synergies with AMX. The strategic incentive to support results in a 'BBB-' IDR at one notch above its SCP of 'bb+'.
High-Quality Anchor Tenant: A1 Towers will generate around 95% of 2023 revenues from TAG, across six markets in
Limited Customer Diversification: With the majority of its revenues coming from its anchor tenant, A1 Towers is more exposed to risk of disruption from a single customer than a more diversified, independent tower company like
TAG has the same controlling shareholder as A1 Towers and will have exclusive right of use over a small number of sites. The structure and exclusive rights could negatively affect its competitive positioning relative to other independent tower companies when seeking new tenancy growth.
Industry Growth: A1 Towers does not have a committed build-to-suit (BTS) contract with its anchor tenant, which reduces the revenue visibility relative to that of European peers, like
For 5G networks to be effective in meeting the latency and speed demands of technologies like Internet-of-Things and artificial intelligence network densification is needed. More spectrum frequencies are expected to become available in the mid- and high-band frequencies, which are high speed over short distances and will need more sites. National network roll-out requirements also increase the need for towers in rural and suburban areas.
Derivation Summary
As a provider of passive tower infrastructure on long-term contract terms, A1 Towers benefits from superior revenue stability and visibility, typical for the mobile tower industry. Consequently, we view the operating profile as having less risk and greater leverage capacity than that of telecoms operators such as
Compared with European tower peers, A1 Towers benefits from a leading market share of towers in its largest market and a high-quality counterparty in its anchor tenant (TAG). Relative to
Key Assumptions
Revenue growth of 4.9% in 2023 following inflation-linked price increases, site number growth and committed third-party lease increases. This is followed by average revenue growth of 3.9% to 2026
Fitch-defined EBITDA margin to reach 55.2% in 2023, and to gradually increase to 57.6% by 2026
Lease profit & loss (P&L) charges (right-of-use amortisation and lease interest) around 30% of revenue per year to 2026
Capex to average 24.2% of revenue between 2023 and 2026
No dividends paid through to 2026
No M&A through to 2026
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
EBITDA net leverage trending below 6.0x on a sustained basis, which is above A1 Towers' target net leverage of 5x
A change in Fitch's assessment of legal or operational incentives for AMX to support A1 Towers to 'Moderate' or 'High'
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Failure to reduce EBITDA net leverage below 7x
Deterioration in FCF generation or a change in EBITDA mix with a greater contribution of FCF derived from higher-risk assets and less predictable revenue streams
Loss of anchor tenant contracts across any of its six markets
AMX's shareholding in
Liquidity and Debt Structure
Adequate Liquidity, Long Debt Maturity: Following the refinancing we assume limited debt maturities until 2028. Aside from any planned revolving credit facility (RCF), we expect future liquidity to be supported by double-digit FCF margins from 2026, following a period of new site builds and tower upgrade capex, which would constrain FCF generation till 2025.
Issuer Profile
A1 Towers is tower infrastructure company operating around 13,000 towers in the six countries (
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
A1 Towers' ratings are linked to AMX's.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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