Fitch Ratings has upgraded
The upgrade corrects an error in the application of the Long-Term Foreign Currency Issuer Default Ratings to the senior secured notes at the time of the last review on
Key Rating Drivers
High Leverage: ATP's net leverage is expected to end 2023 at 8x as its capex roll-out accelerates over the next two years. This compares to the 8.9x leverage of 2022. Contracted fiber deployment and tower site builds should contribute to EBITDA expansion during 2023 and into 2024. Fitch expects net leverage to decline to close to 7.0x in 2024.
Increasing Competition: ATP's ratings are constrained by its small size when compared with most peers in the independent infrastructure space. Competition in the telecom infrastructure business has continued to increase with larger rivals growing both organically and inorganically.
Rapid Growth: ATP's EBITDA should continue to grow at double digits as the company expands fiber and tower infrastructure. EBITDA is expected to grow to
Low Sector Risk: The tower industry carries minimal risk related to tower obsolescence or technology. The wireless operator deploys all the electronics and antenna platforms, while the tower operator is responsible for the physical site. Also contributing to the stability of the tower business is the lack of robust alternative technologies. The only available alternative capable of broad geographic coverage-satellite transmission-is ineffective indoors, affected by obstructions and degrades in severe weather conditions.
Long-Term Growth Opportunities: Demand for data capacity continues to grow rapidly. Wireless companies have been densifying their 4G LTE networks, which increases the network capacity, and are implementing technological evolutions to increase speed and capacity. Mobile broadband services remain a key factor in future revenue and cash flow growth for the tower industry. The development of 5G in
Counterparty Risk: ATP benefits from contracts with its clients that are typically 10 years in initial length. The average remaining life of its contracts is approximately six years for towers and eight years for fiber. These contracts mitigate volume and price risk and are positively factored into the ratings. Client concentration is high, particularly to
Derivation Summary
ATP and other digital infrastructure operators have operating profiles with high visibility and stability of rental income based on passive infrastructure and long-term contracts, offset by underlying asset specificity that affects liquidity of sale. The tower industry employs a stable business model and experiences much lower business risk than many business models within the telecommunications segment.
The North American wireless telecom tower industry is dominated by
In addition to its small size and greater emerging market exposure, ATP's relatively short track record and ambitious growth plans limit the rating. The company's EBITDA net leverage metrics are consistently higher than global peers and are most closely in line with European operator
Indonesian peer's
Key Assumptions
Revenue growth from about
EBITDA margins improving from around 40% to around 55% as improving tenancy drives economies of scale;
Capex around
Net debt to EBITDA ratio around 8.0x in 2023 and close to 7.5x in 2024;
No dividend distributions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Stronger than expected revenue growth over the medium term, driving EBITDA margins over 60%;
Net leverage sustained below 6.5x;
Neutral FCF.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
A delay or inability to execute business plan as envisioned;
Revenue growth in the medium term slowing to the mid-single digits, with EBITDA margins of around 50%;
Net leverage sustained above 7.5x;
The loss of a major tower tenant, while unlikely, could drive a downgrade of the ratings.
Issuer Profile
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.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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