Crown Castle International Corp. (CCI, Financial) filed Quarterly Report for the period ended 2009-03-31.
Crown Castle International is a leading owner and operator of towers and transmission networks for wireless communications and broadcast transmission companies. The company owns leases or operates towers in the United States Puerto Rico and the United Kingdom. The company's customers currently include many of the world's major wireless communications and broadcast companies including Bell Atlantic MobileBellSouth AT&T Wireless Nextel Metricom and the British BroadcastingCorporation. Crown Castle International Corp. has a market cap of $7.05 billion; its shares were traded at around $24.43 with and P/S ratio of 4.5. Crown Castle International Corp. had an annual average earning growth of 15% over the past 10 years.
Although the mortgage loan due in 2011 was refinanced, the issuance of the 7.75% secured notes in April 2009 did not qualify as the hedged forecasted transaction that was documented as the first 60 monthly interest payments based on a five year LIBOR swap rate that was to result from the anticipated refinancing of the mortgage loan due in 2011. Since it was determined in April 2009 that the hedged transaction will not occur, we discontinued hedge accounting and will reclassify the entire loss (approximately $133 million) from AOCI to earnings in the second quarter of 2009 for these specific interest rate swaps. Currently, we have elected to not early settle the forward-starting interest rate swaps that hedged the refinancing of the mortgage loan due in 2011 although, in April 2009, this mortgage loan has been refinanced at a fixed rate. As a result, beginning in April 2009 these swaps are no longer economic hedges of our exposure to LIBOR on anticipated refinancing of our existing debt, and changes in the fair value of the swaps will be recorded in earnings until settlement. These non-economic hedges have a notional value of $1.55 billion, and the fair value is a liability of approximately $137.8 million as of March 31, 2009. See also Item 2. MD&AAccounting and Reporting MattersCritical Accounting Policies and Estimates.
We are exposed to non-performance risk from the counterparties to our interest rate swaps. In October 2008, a subsidiary of Lehman Brothers that was our counterparty for two interest rate swaps filed for bankruptcy. These two interest rate swaps have a combined notional value of $475.0 million and represent a liability of approximately $42.6 million as of March 31, 2009. Our other interest rate swaps are with Morgan Stanley and the Royal Bank of Scotland plc who have credit ratings of A or better. See note 5 to our condensed consolidated financial statements and the tables below.
A hypothetical decrease of 100 basis points in the prevailing LIBOR yield curve as of March 31, 2009 would increase the liability for our swaps on a settlement value basis by nearly $280 million, and an opposite hypothetical increase in rates would reduce the liability by a similar amount. We immediately mark to market in earnings interest rate swaps that are not designated as hedges, which has included and will include the interest rate swaps with Lehman Brothers and will include, beginning in April 2009, the aforementioned forward-starting interest rate swaps that hedged the refinancing of the mortgage loan due in 2011. As a result, we estimate that the impact of the hypothetical unfavorable movement of 100 basis points would decrease earnings by approximately $109 million, and a similar amount would positively impact earnings from an opposite hypothetical increase in LIBOR.
Read the The complete ReportCCI is in the portfolios of John Griffin, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
Crown Castle International is a leading owner and operator of towers and transmission networks for wireless communications and broadcast transmission companies. The company owns leases or operates towers in the United States Puerto Rico and the United Kingdom. The company's customers currently include many of the world's major wireless communications and broadcast companies including Bell Atlantic MobileBellSouth AT&T Wireless Nextel Metricom and the British BroadcastingCorporation. Crown Castle International Corp. has a market cap of $7.05 billion; its shares were traded at around $24.43 with and P/S ratio of 4.5. Crown Castle International Corp. had an annual average earning growth of 15% over the past 10 years.
Highlight of Business Operations:
We have managed our exposure to market interest rates on our existing debt by (1) controlling the mix of fixed and floating rate debt and (2) utilizing interest rate swaps to hedge variability in cash flows from changes in LIBOR on our outstanding floating rate debt. As of March 31, 2009, we had $637.0 million of floating rate debt, of which $625.0 million is effectively converted to a fixed rate through an interest rate swap until December 2009. As a result, a hypothetical unfavorable fluctuation in market interest rates on our existing debt of two percentage points over a twelve-month period would increase our interest expense by approximately $3.4 million.Although the mortgage loan due in 2011 was refinanced, the issuance of the 7.75% secured notes in April 2009 did not qualify as the hedged forecasted transaction that was documented as the first 60 monthly interest payments based on a five year LIBOR swap rate that was to result from the anticipated refinancing of the mortgage loan due in 2011. Since it was determined in April 2009 that the hedged transaction will not occur, we discontinued hedge accounting and will reclassify the entire loss (approximately $133 million) from AOCI to earnings in the second quarter of 2009 for these specific interest rate swaps. Currently, we have elected to not early settle the forward-starting interest rate swaps that hedged the refinancing of the mortgage loan due in 2011 although, in April 2009, this mortgage loan has been refinanced at a fixed rate. As a result, beginning in April 2009 these swaps are no longer economic hedges of our exposure to LIBOR on anticipated refinancing of our existing debt, and changes in the fair value of the swaps will be recorded in earnings until settlement. These non-economic hedges have a notional value of $1.55 billion, and the fair value is a liability of approximately $137.8 million as of March 31, 2009. See also Item 2. MD&AAccounting and Reporting MattersCritical Accounting Policies and Estimates.
We are exposed to non-performance risk from the counterparties to our interest rate swaps. In October 2008, a subsidiary of Lehman Brothers that was our counterparty for two interest rate swaps filed for bankruptcy. These two interest rate swaps have a combined notional value of $475.0 million and represent a liability of approximately $42.6 million as of March 31, 2009. Our other interest rate swaps are with Morgan Stanley and the Royal Bank of Scotland plc who have credit ratings of A or better. See note 5 to our condensed consolidated financial statements and the tables below.
A hypothetical decrease of 100 basis points in the prevailing LIBOR yield curve as of March 31, 2009 would increase the liability for our swaps on a settlement value basis by nearly $280 million, and an opposite hypothetical increase in rates would reduce the liability by a similar amount. We immediately mark to market in earnings interest rate swaps that are not designated as hedges, which has included and will include the interest rate swaps with Lehman Brothers and will include, beginning in April 2009, the aforementioned forward-starting interest rate swaps that hedged the refinancing of the mortgage loan due in 2011. As a result, we estimate that the impact of the hypothetical unfavorable movement of 100 basis points would decrease earnings by approximately $109 million, and a similar amount would positively impact earnings from an opposite hypothetical increase in LIBOR.
Read the The complete ReportCCI is in the portfolios of John Griffin, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
