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ATP Tower Holdings, LLC -- Moody's assigns first-time Ba3 rating to ATP and its senior secured notes, outlook is stable

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Rating Action: Moody's assigns first-time Ba3 rating to ATP and its senior secured notes, outlook is stableGlobal Credit Research - 14 Apr 2021New York, April 14, 2021 -- Moody's Investors Service, ("Moody's") has today assigned a Ba3 corporate family rating (CFR) to ATP Tower Holdings, LLC (ATP) and its proposed $375 million senior secured notes due 2026. The outlook for the ratings is stable. This is the first time Moody's assigns a rating to ATP.Proceeds from the bond issuance will be used to repay existing debt, fund the company's expansion plan and general corporate purposes. The notes will rank pari passu with all other secured and unsubordinated debt obligations of ATP.The proposed notes will be issued by ATP Tower Holdings, LLC, Andean Tower Partners Colombia SAS, Andean Telecom Partners Peru S.R.L. and Andean Telecom Partners Chile SpA, as co-issuers and will benefit from the guarantee of ATP Fiber Colombia SAS, Redes de Fibra del Peru S.R.L. and ATP Fiber Chile SpA, as well as a pledge over the shares of the guarantors. If concluded successfully the new senior secured notes will represent the largest portion of ATP's outstanding debt aligning the notes rating to the company's CFR of Ba3.The rating of the notes assumes that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and that these agreements are legally valid, binding and enforceable.Assignments:..Issuer: ATP Tower Holdings, LLC.... Corporate Family Rating, Assigned Ba3....Gtd. Senior Secured Regular Bond/Debenture, Assigned Ba3Outlook:..Issuer: ATP Tower Holdings, LLC.... Outlook, Assigned StableRATINGS RATIONALEThe Ba3 CFR considers ATP's business model that provides high cash flow visibility from long-term, non-cancelable, take-or-pay contracts containing escalators to compensate for inflation with Empresa Nacional de Telecomunicaciones S.A. (Baa3 stable), Telefonica S.A. (Baa3 stable) and America Movil, S.A.B de C.V. (A3 negative). Although these three customers represent 80% of ATP's revenues streams, this is counterbalanced by additional diversification from the fiber business expected to reach 15% of total revenues in 2021, as well as high barriers to entry and high renewal rates.The Ba3 rating also considers ATP's geographic diversification in Chile , Government of (A1 negative), Colombia , Government of (Baa2 negative) and Peru , Government of (A3 stable); operations in these countries provide sound long-term fundamentals for growth due to demand for wireless connectivity, combined with still low penetration rates in the region. Recent spectrum auctions in Colombia, Chile and upcoming auctions in Peru will drive additional growth opportunities for mobile operators; thus, for tower companies. ATP also benefits from a seasoned management team and strong sponsors who have supported the company's growth through several equity injections in the last four years.The rating is constrained by the company's small size when compared to other rated peers represented by its still low number of towers that should reach approximately 3,700 by 2021. ATP's proforma adjusted leverage will peak at 7 times by 2021 and will decrease towards 6 times by 2023. The rating also considers the company's expected negative cash flow to finance growth.Proforma for the issuance of the notes, ATP's liquidity is adequate. ATP's free cash flow has remained negative in recent years, driven by large capital investments. Nonetheless, a large portion of this capex is discretionary, while ATP's risk is minimal since all deployed capex is tied to contracted revenues. Post transaction, the proposed bond will represent around 80% of total debt, with remaining approximately $90 million in operating leases and a comfortable maturity profile because the bond will mature only in 2026. Capital investments have been funded with a combination of debt and equity injections from the company's main shareholders, who provided around approximately $700 million in the last four years. ATP's adequate liquidity is further supported by the company's current zero dividend policy and its $60 million committed revolving credit facility available until 2024 that benefits from the same guarantors and collateral of the proposed notes. The rating considers the company's fully hedged debt including swaps on the coupon payments and principal.In the waterfall analysis of claims at bankruptcy, the notes rank behind the $60 million revolving credit facility in the event of repayment with proceeds from collateral. However, the proposed secured notes are rated Ba3 in line with the CFR, because the revolving credit facility will represent around 11% of ATP's capital structure, if fully drawn and on a proforma basis; hence it will not be significantly large to result in the effective subordination and notching down of the proposed notes. If the capital structure changes in the future to become proportionally more concentrated in the credit facility, the notes could be effectively subordinated to the facility resulting in a rating downgrade of the notes.The stable outlook reflects Moody's expectation that ATP will be able to execute its growth plan, integrate business and continue expanding into the fiber business while maintain Moody's adjusted leverage below 7 times and an adequate liquidity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward rating pressure is limited over the near term. However, the rating could be upgraded over time if ATP is able to increase its operating scale while maintaining its market position as one of the top three neutral infrastructure providers in the markets in which it operates. Quantitatively, an upgrade would be considered if the company reduces its Moody's adjusted leverage to below 5 times on a sustained basis while maintaining an adequate liquidity.ATP's ratings could be downgraded if the company choses to expand its operations into countries with weaker economic environments or higher political risk, which is not currently envisaged by management. A deterioration in the credit profile of its main tenants could also lead create negative pressure on the ratings. A deterioration in ATP's liquidity profile or credit metrics, such that Moody's adjusted debt to EBITDA is sustained above 7x could also lead to a downgrade.The principal methodology used in these ratings was Communications Infrastructure Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1076924. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.ATP is an independent tower company with operations in Chile, Colombia and Peru, countries in which the company is one of the three main independent tower operators. ATP started operations as Torres Unidas in 2012 and was acquired in 2017 by a group of investors including Interconexión Eléctrica S.A. E.S.P. (Baa2 stable), Digital Colony (not rated), among other private investors. As of December 2020, ATP generated revenue of $75 million and owns 3,092 towers and 3,223 km of fiber.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. 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Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Rosa Morales Asst Vice President - Analyst Corporate Finance Group Moody's de Mexico S.A. de C.V Ave. Paseo de las Palmas No. 405 - 502 Col. 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