DJ Tower Companies' Bonds Up On Improved Wireless Outlook
17 Apr 15:27
By Tom Barkley
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The bonds of speculative-graded telecommunications
tower companies have been buoyed in recent days by analysts' reports suggesting
the sector has been unnecessarily sold off by panicky investors.
Fears that demand for wireless service is ebbing were alleviated by strong
first-quarter numbers by Sprint Corp. (PCS) and Alamosa Holdings Inc. (APCS)
last week, which was reassuring for the tower companies that host the wireless
networks.
Also, the outlook for bondholders of the tower sector is positive because
many of the companies have adequate funding levels for continued expansion
through the next couple of years, analysts say.
"The stocks have been beaten up because the big six (wireless) carriers are
facing funding constraints, but it's a win-win situation for the tower guys,"
said Timothy Finn, tower analyst at J&W Seligman & Co., whose high-yield fund
owns several tower names.
He said one of the only ways for wireless companies to compete is by getting
on more towers to increase coverage, while tower companies enjoy significant
cash-flow margins by adding more providers to existing towers.
With spreads to Treasurys in the mostly single-B-rated sector widening by as
much as 270 basis points in recent weeks, two reports have pinpointed tower
names as a good buying opportunity.
Bond prices for much of the sector have risen 1-to-2 points this week
following reports by Merrill Lynch and Credit Suisse Boston recommending a buy
rating on several of the sector's bonds.
SpectraSite Holdings Inc. (SITE) 12.5% notes due 2010 have jumped 8 points to
93.5, shaving 100 basis points off its yield spread to 1374 basis points over
10-year Treasurys.
"We really view this as a quality sector for the high-yield market," said Bob
Kricheff, managing director of high-yield research at Credit Suisse First
Boston, who released a report last Thursday recommending buy ratings on three
of the five high-yield tower names, including SprectraSite.
"There's been a little overreaction and panic in the market," he said. "From
a bond perspective, these companies can see worse growth numbers and do well
because they have a lot of cash flow."
CSFB upgraded its recommendation on the cash-pay bonds of SBA Communications
Corp. (SBAC) and SpectraSite to "buy" from "attractive," while maintaining a
"buy" rating on Crown Castle International Corp.'s (TWRS) preferred shares and
SpectraSite's deferred-pay bonds. The ratings for American Tower Corp. (AMT)
and Pinnacle Holdings Inc. (BIGT) were left unchanged at "attractive" and
"neutral," respectively.
Overweight Sector - Merrill
Tuesday, Merrill Lynch added its positive spin on the sector, saying that
2001 and 2002 should be strong years for tower operators and recommending being
overweight in the sector.
Matt Crakes, vice president and wireless analyst at Merrill Lynch, said some
equity analysts' concerns that a slowing economy and equipment vendor warnings
would hurt wireless network expansion were unfounded.
"There's little evidence that the big six national carriers are decreasing
capital expenditures," he said, adding that a Merrill survey of wireless
providers found that expenditure forecasts for 2001 were up an average of 13%.
"If the capital expenditures are spent, the tower companies will benefit."
Merrill reiterated an "overweight" position for Crown Castle's cash-pay and
zero-coupon notes, as well as on the preferreds for investors after more
return. It also maintained an "overweight" recommendation on SBA's zero-coupon
bonds and a "speculative-buy" rating on SpectraSite. American Tower and
Pinnacle are unchanged at "neutral."
Among other gainers this week, SBA's 10.25% notes due 2009 have climbed to 96
from 93, while American Tower's 9.375% notes due 2009 have bumped up to 97.5
from 96.25.
Meanwhile, Crown Castle's notes are up slightly, with the 9.5% notes due 2011
at 98 and the 10.75% notes due 2011 at 104.25.
-By Tom Barkley, Dow Jones Newswires; 201-938-4385
tom.barkley@dowjones.com
(END) DOW JONES NEWS 04-17-01
03:27 PM |
