Nextel ready to take towers from SpectraSite’s control

Nextel Communications has formed a new tower division and appears poised to buy back its towers from beleaguered SpectraSite, which will likely file for Chapter 11 bankruptcy as it sinks under massive debt.

While SpectraSite has indicated that day-to-day operations will remain intact should it file for bankruptcy, people close to Nextel said the carrier is preparing itself for a worst-case scenario. Nextel declined to comment on plans for the newly created Tower Assets Group.

In 1999, Nextel and other major operators began selling off their tower portfolios and leasing them back from major public tower companies in order to monetize tower assets and compete in an increasingly crowded market. Tower companies were willing to pay handsomely, and Wall Street fed their appetites. Today, falling capex budgets and customer growth expectations are translating into fewer towers and tenants to share them.

“The least leveraged tower company has a 10 times debt-to-EBITDA,” said Sean Butson, wireless analyst with Legg Mason.

Wireless operators are faced with tower partners that may have to sell back some of their portfolios to reduce debt. In addition, carriers are becoming increasingly uncomfortable about partnering with companies that have shaky balance sheets.

As a result, industry insiders said operators are reluctantly reassessing their relationships with tower companies and struggling to value tower assets in a shifting pricing environment.

In the heat of competition, managing towers and brokering relationships with competitors that want to share tower space is not the best allocation of carrier resources, analysts said. And most operators don’t want to own their towers again. Meanwhile, because capital markets are essentially closed, public tower companies have stopped purchasing new tower portfolios from carriers that haven’t sold assets yet. Now private tower companies are stepping into the breach.

AAT Communications, backed by investments from Charterhouse Group International and Cequel III, has quickly become one of the largest privately held tower companies in the U.S., announcing an agreement to purchase U.S. towers from New Jersey-based Centennial Communications.

“Even though the market is difficult, we’re still actively looking to deploy capital for acquisitions,” said Ed Farscht, senior vice president of corporate development for AAT.

Likewise, Marc Ganzi formed Global Tower Partners in June and has $200 million in financing from undisclosed backers. “We think we can buy towers at about 75% cheaper than what the public guys paid for them,” he said.

GridCom International, led by CEO Doug Wiest, entered the U.S. market about two months ago as an unregulated affiliate of U.K. power company National Grid Transco. Its purpose is to provide turnkey services that locate wireless operators’ network equipment on National Grid USA structures. However, cheap tower valuations give the company an opportunity to buy and build towers, Wiest said.

Public tower companies appear happy to oblige by shedding non-core assets. American Tower is divesting some microwave towers and other non-strategic towers. Meanwhile, SpectraSite is looking for a buyer for its network services division.

Private companies believe it’s only a matter of time before some significant tower portfolios come up for sale at attractive prices.“We think we can be opportunistic,” Ganzi said.

PUBLIC TOWER FIRMS ON SHAKY GROUND

American Tower: Reaffirmed strong guidance to Wall Street, but Standard & Poor’s Rating Services put the company on CreditWatch with negative implications.

Crown Castle International: S&P placed the company on CreditWatch with negative implications. Appears to be in the most favorable financial position of all the public tower companies.

Pinnacle Holdings: Filed for bankruptcy reorganization in May. Is emerging as a privately held tower company.

SBA Communications: Lowered third quarter guidance. S&P placed the company on CreditWatch with negative implications.

SpectraSite Holdings: Defaulted on $200 million of bonds following its failure to pay $10.8 million in interest on notes due Sept. 15. Analysts say bankruptcy is imminent.

Source: Company research