美國電塔 (AMT) 2004 Q1 法說會逐字稿

Welcome to the American Tower Corporation first quarter earnings conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to Michael Prowl (ph), Manager of Financial Planning.

Good morning, thank you for joining American Tower's conference call regarding your first quarter earning. We'll begin with comments from Brad Singer, our Chief Financial Officer and James Taiclet, Chairman and Chief Executive Officer.

We would like to remind you that this call would contain forward-looking statements that involves a number of risks and uncertainties.

Forward-looking statements include discussions about our quarterly and full year 2004 outlook, statements regarding our goals, beliefs, strategies, objectives, plans or current expectations and other statements regarding matters that are not historical facts.

You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors including the risk factors set forth in this morning's press release and on those set forth on our Form 10K for the year ended December if 31, 2003 filed with SEC and other SEC filings.

We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call including the forward-looking statements to reflect subsequent occurring events or circumstances.

Our earnings release, which requires information required by Regulation G was furnished this morning to the SEC in a Form 8K and is also posted on the our Web site. Now I would now like to turn things over to Brad Singer.

Thank you, Michael. As we progress for 2004 we continue to deliver strong operating performance and continue to improve our financial position.

During the first quarter, our core tower operations continued to incrementally grow revenues and increase operating profits enabling us to reduce our leverage and successfully access the capital market to improve our balance sheet and liquidity.

Our first quarter total revenues increased over 15% to 186m from the same period in 2003. The increase in total revenues was primarily driven by a high margin tower division revenue growing over $18m between the first quarter 2004 and the first quarter 2003.

Our first quarter 2004 adjusted EBITDA increased 20% to 106.4m and adjusted EBITDA margins expanded to 57%. Our tower revenues increased 12% to over 164m and our tower operating profits increased 18% to over a 112m from the first quarter in 2003.

We continue to demonstrate the substantial operating leverage inherent in the tower model with our tower expenses increasing by 1m while increase our quarterly revenue by 18m between first quarter 2004 and 2003. As a result we improved our tower operating margins to 68% from 65% year ago.

Our tower expenses sequentially declined from the fourth quarter to 55.7m. A portion of our direct tower operating costs is seasonal in nature with our first quarter expenses historically running lower than the remainder of the year.

As a result, we expected our tower expenses to slightly rise on a sequential basis from the first quarter as a greater portion of our maintenance and site level work is performed during the warmer weather months.

The seasonality of our expense structure is consistent with our previous outlook. We continue to maintain our expectations of modest expense growth in 2004 and conversion of at least 90% of our 2004 incremental tower revenues into cash flow.

On a sequential basis our tower division revenues grew by 1.5m and our operating profit by almost 3m. Please note that our tower division results include the impact of the $34m tower sales in the fourth quarter of 2003, which reduced our revenue - our run rate quarterly revenues by over 1.3m and operating profit close to 850,000.

The strategic divestiture and acquisitions that were completed during the first quarter had a negligible impact on our sequential performance.

As a result of our performance, our tower revenue was at mid point and our operating profit was at the high-end of our outlook. We have slightly refined our outlook for the remainder of 2004. With annual tower revenue growth of 9 to 11% and our tower expense forecast described previously.

We modestly adjusted outlook a part of our tower revenue and operating profit ranges to reflect first quarter performance.

The services division reported revenues of 21.6m and operating profit of 800,000 for first quarter. Our service revenue was higher than expectations due partially to a winding down of a minimally profitable client project, which will continue through the third quarter.

Our margins continue to not meet our expectations due to poor mix of lower margin projects. We are maintaining our service outlook for the remainder of 2004. Our service outlook reflecting modest improvement from our first quarter performance based on better recent business trends and activity level.

In the first quarter, our capital expenditures were below the low end of our expectations and slightly less than 11m. We incurred lower than anticipated Capex in the quarter due to a fewer newly built towers. While we continue to demonstrate stringent investment discipline we remain committed investing in double-digit with new growth opportunities anticipate building a 120 to 150 towers in 2004.

We have provided a breakout of Capex spending and supplemental information in our press release. Our capital expenditure outlooks for the remainder of 2004 has been lowered slightly to reflect our first quarter performance and modest reductions in new built tower expectations.

As a result of continued strength of core tower operations and tight capital spending control we generated over 26m of free cash from the first quarter, a highest left level ever.

While we continue to expect free cash flow to grow sequentially we do anticipate seasonally higher level of Capex on a sequential basis consistent with our previous outlook.

We define free cash flow as adjusted EBITDA less total interest and Capex. Overall, our 19 cents per share net loss from continued operations was at the narrow end of our range and included a previously disclosed $7m loss related to the redemption of our 6.25 convertible note and write-off of deferred financing fees.

From a strategic perspective we closed 15.5m of non-core asset sales during the first quarter. The tower divested were in low growth non-core locations as well as small office building. We anticipate selling another 10m of non-core assets during the remainder of 2004.

Consistent with our strategy, we re-deployed 13.19 of the proceeds from our divestiture into our core tower business consisting of the purchase of 600,000 NII holding towers, 9.7m of Iusacell tower and 2.8m domestic towers during the quarter. We anticipate closing another 3.9 of towers assets from NII holdings and 13.7m of tower Iusacell during 2004.

Reviewing our strategic activity since the beginning of 2002, we have successfully received over 270m of cash proceeds from the divestiture of non-core service operations, office buildings and tower assets while re-deploying approximately 160m in the purchase of strategically attractive high growth tower. As we continue to focus on improving our operating performance and execution, we are also working hard on strengthening our financial position and lowering our cost of capital.

Consistent with our financing goals of increasing financial flexibility and liquidity while reducing our leverage and interest costs we executed a securities offering and reprise the bank facility during the first quarter. We successfully completed a 225m, 7.5% senior note offering by our parent of to dilate to purchase 6.25 convertible notes that may be put to us in 2006. This offering improved our financial position by increasing our liquidity to the extent of 225m of near term maturities through 2012 at through low fixed rates.

The combination of our strong performance and capital market activity over the past year has reduced our bank borrowings by over 800m and bank leverage to annual adjusted EBITDA ratio of 4.3 times at the beginning of 2003 to approximately 1.6 times today.

As a result of our relatively conservative bank leverage, we are keen to refinance our $961m existing senior security credit facilities of which $666m is outstanding with new $1.1b senior secure credit facilities. The new facilities are expected to provide the company greater financial and operational flexibility.

The proposed new facilities would extend the maturities through 2011 from 2007, up dates are completing certain leverage refinancing business in 2008. If we are successful and define our credit facility to anticipate that $700m of the credit facilities consisting of the term loan A and term loan B would be drawn a closing in the second quarter with a $400m of volume are un-drawn and available.

Due to the extension of maturities under the proposed new facilities, we would be able to utilize our cash on hand and cash generated from operations to refinance and repurchase higher cost debt flat rather than amortized bank debt thereby reducing our featured interest cost.

We also expect to have record a draw on the $400m of volume to refinance our that repurchase higher cost debt further reducing our future interest cost.

The company has a few commitments from lenders for the full amount of new facilities in advance of completing this indicative process. However, please note this amount to subject to negotiation, execution and delivery of the new definitive documentation and various other customary conditions.

A strong operating performance enabled us to sequentially reduce our leverage. Our net debt to annualized adjusted EBITDA ratios decreased during the first quarter from 7.4 to 7.2 times as of the end of December. Based on the mid point of our outlook, we continue to anticipate our net debt to annualized adjusted EBITDA as expected to be in the mid 6 range by end of 2004.

Our reduced leverage, extended maturity and proposed new credit facilities are anticipate to provide us with flexibility to now pursue more aggressive corporate interest expense reduction over the next several years while maintaining a high level of liquidity.

We expect to have a varied opportunistically refine the progress piece of our debt structure and anticipate potential interface in excess of $50m annually based on today's market environment. I will not hand things over to James Taiclet:, American Tower CEO and Chairman to provide an operational update and request to mention of exact where we have been of end this last weekend.

Thanks, Brad. While communications has become an increasingly important perhaps eventually to evolve into the dominant segment of the US telecommunication industry. The major wireless carriers collectively are making significant forward progress on many important dimensions.

The industry continues to add subscribers at a robust pace and an important source of recent growth are family plans and successful MVNO brands that are accelerating penetration in the critical youth market and also have been demonstrating solid financial performance and consistently improving our operating metrics. They have a level of confidence in their business plans that led the first concrete steps in the launch of true three key networks in the United States. The wireless industry is healthy and growing and that's a great environment for tower industry.

Demands for towers straight in US remains strong. At American Tower, we were once again able to capitalize on our industry leading position in the US market to deliver solid growth in tower realizing revenue. The continuing trends in the wireless industry of subscriber growth, minutes of use growth, emphasis on network quality and efforts to reduce churn, all had a robust new reached up in the first quarter.

A number of US carriers have publicly communicated their intentions to turn invest in their networks to expand capacity, coverage and features, including now higher speed data services. For example, Nextel is taking advantage of its continuing success to it's direct connect product and financial performance to strengthen its network in a number of regions in the US.

In addition, Cingular is moving forward with thorough and viable plans to enhance its network as a complete GSM overlay. T-Mobile's also building out to meet network demand of this very fast growing subscriber base and today they are also active and is working to meet the increasing load on its network brought out by successful joint venture with Virgin mobile.

Verizon continues it's pace of investing in it's voice network to handle substantial subscriber and minutes of use growth and is planning and now to beginning to execute it's EVDO roll out.

The robust links up environment in the US is also present in Mexico. Telcell is increasing its emphasis on cell location as a method to build upon its network. Uniphone is also active in adding cell sites. In addition NII holdings strong performance in its Mexican market is beneficial to American tower in both regards to the NII towers that we purchase and lease up opportunities on other ATC Mexico towers.

Given the favorable industry trends in both the US and Mexico we have high confidence in achieving our revenue and new business goals for the year. We also anticipate the mix of new business in 2004 at American tower to change slightly from last year.

We anticipate a higher proportion of our new business to be generated in the US markets with a somewhat lower proportion being generated by broadcast and international versus last year when they were somewhat higher. We also continue to convert our top line growth into best in class bottom line results.

On a sequential basis, we have reduced tower-operating costs in the first quarter, consequently our incremental revenue conversion to operating cash flow was again in excess of 100%. We added revenue and reduced cost.

There's as a largest operator in the US and Mexico in terms of number of towers and revenue, our domestic and international management teams continually strive to leverage our scaled advantages to mitigate cost.

Our tower operations delivered a sequential reduction in costs, as I said, but Brad also mentioned that portion of that reduction was based on seasonal factors and even so tight cost control remains a key priority across our company.

Similarly we've also held the line on corporate expenses and therefore improvements in our tower operating profits have flowed to adjust EBITDA. As a result first quarter adjusted EBITDA increased 20% over the prior year and adjusted EBITDA margins improved to 57%.

And American tower continues to lead the industry in this EBITDA margin metric. Based on our solid start in Q1, we are raising the low end of our guidance for both tower revenue and operating profit for the remaining quarters of the year.

As a result, we are tightening our original 2004 guidance for tower revenue growth presented in February to 9-11% up from 8-11% for the balance of the year and we're still projecting to convert at least 90% of that revenue growth into operating profit.

We also sustained our disciplined approach to capital expenditures in the first quarter. The high quality of our tower portfolio enable us to keep maintenance and augmentation Capex again to just 3% of revenues.

We also continue to build towers on a selective basis under our targeted criteria of at least 10% initial return on investment. In fact, the 13 towers that we did build in the first quarter delivered a collective 15% return.

Our record high level of quarterly free cash flow over $26m with our sixth straight quarter of positive and increasing free cash flow and this is a trend that will continue.

The present trend consistent predictable track record of operating performance and free cash flow generation goes to our managers and employees across this company. As investors you should be aware that we are investing in the quality of our management.

First and foremost is our talent management review process, which is designed to identify high potential and high, performing managers and employees.

The members of the senior executive team and I evaluate each and every one of the management teams across company to ensure that the talent and skills exist at each level of the company to get the job done and we also identified professional growth and training opportunities for our key managers and employees.

With special emphasis on the high impact, high potential players out there. We also assure that there's a succession plan identified for each key position and we conduct this entire process twice a year. I'm convinced that our managers and employees supported by this talent management process are a crucial factor in our ongoing operational success.

On a financing front, we are dedicated to our de-leveraging path. Our net leverage stands now at 7.3 times, adjusted EBITDA down five full terms from the first quarter 2002 level of 12.2 times. By year-end, we do plan to be as Brad said in the mid six range.

The bank financing that we announced last week will enable us to extend the maturity of our current facility and provides greater flexibility on how we can utilize our free cash flow over the next few years.

The result will be opportunities to use our free cash flow to pay down our higher cost debt instruments and also have increased flexibility to refinance these instruments if we so choose.

Consequently, as we execute our overall financing strategy you can expect to see our interest cost decline on the order of $40 to $50m annually over the next 24 months.

This reduction in interest cost coupled with the high operating leverage of our core tower leasing business will act as dual accelerators to our free cash flow. Moreover, we expect to receive a $90m tax refund at some point during the next 12 to 30 months, further augmenting our free cash flow.

We will use our cash to pay down debt thereby transferring a larger proportion of our enterprise value to equity.

Finally, a couple of notes on strategic issues first, we accomplished the divestiture of Kline Iron & Steel, the last of the former services businesses designed for sale or designated for sale.

As a result, we've completed our transformation to a pure tower company with only a limited integrated set of service activities such as antenna and line installation, which directly supports the co-location of additional tenants on our existing towers. As a result our tower leasing business now constitutes 98 to 99% of our operating cash flow.

American tower today is very well positioned. We've obtained our objective of evolving to a pure tower company. We are the leader in U.S. and Mexico with high quality assets that are supporting growing revenues.

We have the best margins in the business and have set up our balance sheet to realize substantial reduction in interest costs.

We do still believe that even greater scale would be beneficial though not essential and so we do intend therefore to continue to explore opportunities for tower industry consolidation that would further accelerate our free cash flow growth and benefit our shareholders.

Regardless of the outcome of any strategic opportunities though, this management team will remain fully committed to delivering on our business plan and continuing down the path of improving our financial position. Now we would be happy to take your questions.

Thank you. [OPERATOR INSTRUCTIONS]

The first question comes from the line of Jonathan Atkin with RBC Capital Markets. Please proceed with your question.

Yes. Good morning. A few questions, first of all, wondered how much of your site leasing revenue and cash flow was recurring in nature versus one time? I'm assuming it was mostly or all recurring. Secondly, could you talk about the potential for buying up ground leases and then finally, how much of your EBITDA came from Mexico and Brazil?

John, it's Brad. In terms of recurring versus one time in nature, if the tower, we generally have roughly 97%, 98% is recurring in nature.

The only that isn't recurring is you have a small portion of generally 1 to 2m of back billing and that occurs almost consistently each quarter and that's really the only non recurring item in our tower business. Services you have to go out and sell it every quarter, so that's a recurring nature business but that's 1% of our operating profit I think this quarter.

In terms of opportunities for ground lease purchases, we do have a program where we do seek to buy in ground leases.

We have been -- what we've been targeting is kind is a five to eight times multiple of those rents. So it equates to somewhere between 12% and 20% return on those assets.

And that helps us to continue down our de-leveraging path also to secure the land on a long-term basis and we do review it quarterly and see where we're progressing and what we really want to do is lock up sites that are very meaningful in terms of cash flow with a long-term lease or a long-term ownership of that land. With regard to Mexico, it was approximately 16% of our consolidated EBITDA this quarter.

Great and, then just in terms of the potential for buying up the ground lease. How would you express it in terms of number of leases or percentage of your towers? Any way to quantify that.

We already own 20% of our leases. And, we are not targeting that program in Mexico currently. So almost all those leases are in the United States. And so what I would say is very incremental rather than an aggressive move towards buying up the land under our towers.

We have -- we're under one thing that we've done and we've done a pretty good job of doing this we have extend the life of our leases under our towers so we have a long economic life at a very, at a reasonable cost. So the opportunity to buy it is up really when they come up for renewal or to accelerate if there's a more favorable economic equation by buying up that land.

Great. Thanks very much.

Thank you. The next question comes from the line of Thomas Vincent of Smith Barney. Please proceed with your question.

A couple of questions. Jim, you talked about continued strong demand from the U.S. carriers. Could you maybe talk about what your expecting terms of industry sell side addition, what is included or assumed within your guidance.

Yes. Our total expected sell site additions for 2004 in the range of 15 to 17,000 sell sites and that would be 5% to 10% greater than 2003 assuming everyone carries through with their plans in the U.S.

OK. And, does your guidance include the expected closing of the NII and the IU cell sites throughout the year or how should we think about that that?

It does. They come in and roughly, we have about 15m left or 16m between those two and they'll come in evenly throughout the year so it's very modest. What we did not adjust is our cap our new builds did not come on line as fast as we would like so the two of those kind of wash each other out.

OK. And you bought around 50 sites in the U.S. during the quarter, how should we think about you know, potentially buying more towers in the U.S. through the end of the 2004?

Tom, it's Jim. It simply comes down to value. We were able to secure a very good deal for American tower. It met the needs of the seller in this particular circumstance. And the multiple that we pay we felt was very reasonable so we when we run into those wags where we think we can get value at a reasonable price, we're going to continue to do that.

Tom, to quantify that, it was a five times multiple for those sites.

OK. Great. Thank you.

Thank you. The next question comes from the line of Ric Prentiss with Raymond James, please proceed.

Yes, good morning, guys, to follow up on that Brad, the towers you bought, that was on the U.S. side.

Yes.

Can you shares with roughly what the prices were in Mexico and also for the towers you sold, what kind of multiples were you getting for selling the towers?

The towers we sold, we had a low double digit multiple and it worked out to about 275,000 a tower to 300,000 a tower and those were in non-core areas and that was the reason for the sale.

In Mexico, it's consistent with what we've been paying in the 200,000 range, 210 are the acquisition price there is and they come in as a high more digit low that were 10 times or less multiple.

You addressed the industry level sell sites, that's kind of the quantity. Can you talk a little bit about pricing what you're seeing as far as average rents and escalators in the industry right now?

Ric, it's Jim. It's more of the same. Very stable from the prior quarter and prior six or so quarters actually.

OK. And then final question for you, Brad. You touched on, a couple of time Jim did as well, the interest cost focus. What do you think the right capital structure looks like for you guys? What should be the net debt to EBITDA interest coverage and kind of whack on your debt?

Well, whack, in terms of ideal capital structure and tying that back into whack, we believe that four to six times is probably the right capital structure for this business.

If you look at that on a whack basis it's diminishing returns as you get below six times as you move down because equity becomes a greater proportion of your weighted average cost and capital.

So that kind of range I think gives us a pretty good sense of good financial position, good financial flexibility. Not takes risk out of the balance sheet. That's what we're targeting, so I don't think you'll see us stop or decelerate our a path of reducing leverage until we get to six times or less and even then I think we still would keep moving down.

That's how we viewed our capital structure and our long-term goals. In terms of a of interest rate costs that, really is the capital markets and as we improve our financial position and if in depending on interest rates go, the spread should narrow what we pay the treasury. And the stability of the business on a long-term basis should translate into lower interest costs.

Two quick final question, the 90m tax refund that's coming at some point, is that paying down a debt already factored into your '04 guidance. And Jim, you mentioned scale, look at industry consolidation. Can't let that tidbit go by without asking you to you can a about in a little bit?

I'll talk about the tax rate will not head over to Tim on that consolidation. I wish it was coming in 2004, Ric it's not in our guidance at all, that refund we're going through the process right now, we have, we're working with the IRS, they're going through their audit, they're verifying everything.

That's a 12 to 30 month process from this point. So it would be fantastic if we get it in '04, But it's probably more like likely in '05, mid, late '05 event along with our original timetable.

OK.

Yes, Ric on the industry consolidation, our position hasn't changed over the last couple of years. Improved scale would be beneficial. We don't need it. We would like it leverage the scale that we have in the U.S. today.

But again, we only will do a deal that's going to benefit our shareholders and that means there's a fair transaction in terms of value to those shareholders and if we can reach those terms with another party, we'll proceed as long as the risk is manageable. So nothing specific to offer you today, but that's still our attitude.

OK. Great. Good luck, guys.

Thanks, Ric.

Thank you, the next question comes from the line of Jim Ballan with Bear Stearns, please proceed with your question.

Thanks a lot, I wanted to ask a little bit more about the towers you a required in the U.S. and really more about the attractiveness of the mom and pop markets youth. Sounds like you've been looking at mom and pop opportunities.

Can you talk about how, whatever changes you've seen in the margin in that market and discuss sort of the opportunity there vis-a-vis the build opportunities that you're seeing tonight. And then sort of fact, your Capex was a little low in the quarter, could you talk about what would cause you to either lower or raise your Capex guidance from where you are now?

Hi Jim, it's Brad. With regard to the acquisition we made in the U.S. That really was not a mom and pop acquisition despite the fairly reasonable multiple. It was a unique situation where you had an end user sell the assets that had quite a bit of wireless activity on it so we haven't aggressively moved into the mom and pop area in terms of looking to buy additional assets.

We are always looking for reasonably priced assets. We think five times multiples of long-term contract is a very reasonably priced acquisition. We probably would do that all day long. But we have a team that or I should say several people this is what they do for a living, they help us sell assets and they help us buy assets internally here.

And what we will continue to look for those kinds of opportunities. In terms of our Capex, we were under and that to get our new builds were lower and our new builds were lower than expectations in the state as well as in Mexico and we do expect to fulfill our plan and Jim noted the towers that we built had an above 15% day one ROA so very good investment.

While we're keeping that discipline of getting that double-digit return day one, we have every intention of trying to build those kind of towers because of those returns. What we slow it down to s really getting that second tenant, working through the permitting process, averaging to go constructing towers.

OK. Great. Thanks a lot, Brad.

Thank you. The next question comes from the line of David Small with Goldman Sachs, please proceed with your question.

A few questions. Just first on the refinancing. Brad, you mentioned there would be 50m in interest expense savings, those don't appear to be in your guidance. Would that be correct? And if so, when do you think you'll start to see them?

They are not in our guidance. Let me be careful, the bank facility we are refinancing right now is still subject to that process. There is market variations and customary closing conditions. And so it's not a foregone conclusion.

But we did disclose that we are in the process of doing that. If we do complete it successfully, we do anticipate over the next 12 to 24 months of bringing down our interest costs and primarily by our cash generated from our operations and cash on hand using both those to repurchase either at the call date or through privately negotiated transactions, our higher cost debt.

So you should expect by '06 kind of early I should say late '05, early '06 that that run rate of saving should be effectuated.

And then we if we think about the nine and three-eighths note that's callable at the beginning '05, it seems to me that could be the biggest opportunity for to you save interest expense. How do you view that and would you look to tender in advance for that or call it? Or are you still focused on the 12 and a quarters.

I think the 12 and a quarters are the biggest opportunity to save interest. But that is not until February 1, 2006. So doing anything prior in either of those instruments really is a function of what it us to do that, is it NPV positive? So as we look at that and you want do some -- our borrowing rate is let's just assume that we would pay down bank debt with the money, our borrowing rate is (inaudible) plus two and a quarter (inaudible) plus 200. And our swapped out, there would be another 200 basis points.

So you're looking at a 5% plus discount rate to us to bring something in that we think makes sense on an NPV basis. It's really just straightforward math, does this create value for the company or does it not create value for the company doing something earlier?

And we can be very pragmatic in how we approach it by looking at what security provides us with the most efficient use of our cash in terms of buying in and reducing interest costs rather than targeting any one security.

And thanks. Just in terms of trends for the quarter, did you see, was January better than February? Did it get progressively stronger and then into April, have you seen the strength continue?

Yes. I think the whole first quarter was pretty solid. There was more momentum, David, I think going into the year from '04 from carriers than there was in previous years. You have sort of this lapse period in the first six weeks of the year. We didn't really see that this time. So it was pretty steady throughout.

Has that continued into April?

Oh, yes, yes. We have, you know, --

Thank you.

Into the second quarter we think it's going to be strong. Continuation of the trend.

Perfect. Thanks.

Thank you. The next question comes from the line of Seth Potter. Please ask your question.

Good morning. Just one quick question. During your 2000, second quarter guidance loss, is the $12m refinancing write off of the financing cost included?

It's assumed that we would complete bank facility so we put it in there and that's what caused the EPS loss to increase. If we don't complete the bank refinancing facility then that loss would not occur.

OK. Thanks.

Thank you. The next question comes from the line of Ned Zachar with Thomas Wiesel and Partners. Please proceed with your question.

A couple of questions. following up on some of the bank debt stuff. First of all, Brad, are the rating agencies rated the bank deal at this point?

We confirmed our ratings and kept us on positive outlook and Moody's would be issuing one prior to refinancing.

And the rating that the S&P came up with was what.

It's an implied B 2 on the bank debt and Moody's right now is B 1.

Obviously they've seen some of the financing that have occurred in the industry IE global signal how do we respond to the rating realizing there are structural differences?

Well, I think the structural differences are important. If you look at the rating it occurred by Fitch and S&P and not Moody's. So it's hard to say that's a great sample for how they would look at a larger tower company deal.

But I think the structural difference really does give more credit strength to that transaction and it was rated as such. By putting into special purpose vehicle by having strict criteria that they don't meet cash flows or then gone in to pay down into fees or kept to pay down debt and that really does provide protection in the mortgage pass-through market.

In terms of the pricing, can you talk about where your pricing is now on the bank debt versus ball park where you're going to be or how much you might save on a live or plus kind of basis.

Look, that will be determined by the market. Our current pricing on our bank facility is depending where you are on the grid is right around Libra plus 200, Libra plus two and a quarter and on the B loan it currently is Libra plus two and quarter.

Who would have thunk it but will the new bank deal in terms of asking this question, would the new bank debt deal permit you to buy some stock back to use free cash flow.

We have not contemplated that. Given the path we're on for de leveraging right now, it is not something we are considering over the next 12 to 24 months. But obviously, we would, if our financial position was such that it is something that would be beneficial in terms of shareholders and really help create new value, we would obviously look at it in the future.

The 90m tax refund, what was the nature of that? Or what was the catalyst or the cause of that refund to become apparent here I guess in the last little while?

We filed for it almost a year ago, Ned. What it was our operating losses which we've kind we have over a billion dollars of them. That wasn't by design. That just happened, due to given our operational last several years, and we paid taxes on the spin off of American tower from American radio.

And so that -- the taxes that were paid, we were, we are allowed to carry back the losses that we've incurred to date. It's not for all of the taxes paid on the spin off, but a certain portion of them.

Thank you. The next question come from the line of Anthony Carmen with Deutsche Bank, please proceed with your question.

Thanks. A few also financing related questions. You've made, I guess, the biggest dent in terms of debt repurchases and it seems like the 5% converts and aside from the hard put date that those converts have in them, why have you been more going after those than some of your other higher cost debt like the 012 and a quarters or the nine and three-eighths, both that you can finance ahead of those. Is it just the dollar price of where those are trading in the market?

Anthony, this is Brad. Part of it is dollar price. We purchased, I would say half of those 5% below par so they were at good yields were we brought those in. The other is in terms of looking at the maturities of our debts, we've been clearing out the near term mature this, that's why you see us refinancing the six and quarter and the 5% through January 2007 maturities, so we've brought those down to a level that's sub 300 at this point and that provides us with the flexibility to then target other debts that's not to say, we would not continue buying at 5% if that was not appropriate priced, but you have to balance this absolute cost of the debt that you're repurchasing with the timing of the maturity of that debt.

Thanks. And just a little bit of a follow-up. Going back about a year ago when you guys spoke, it sounded more like the operating company entity where you had issued the zeroes and other securities was really got to be your runway for refinancing the capital structure. But given that the holding companies securities have begun appreciating in value, you know, might you use that as a refinancing vehicle as well? Or is it easier for you to refinance the holding company debt with just new holding company paper given that you wouldn't have to pass it through a restricted payments test at the holdco.

I think ultimately, Anthony, we will move in that direction. But it really is a commonsense approach of what is the imitational flexibility what's the cost of the financing you're doing. And if the holdco as you re-finance it and we have the 93 as re-finance. That's a big amount, a billion dollars to refinance. A portion of that if we were going to do it current year or even at the call date would come from the holdco and it could be all of it. But that's really depending on market conditions. So, I think your intuition is correct in how we look at this and really the balance of the cost versus financial flexibility.

Thanks. And final question. I guess you would add -- the prior question was asked about stock repurchases, but would with the new bank facility have a basket in it for subordinated debt repurchases?

We are still going through that process so once again, the bank facility is not finalized and we're in the market doing this. But it is contemplated we could use funds from the facility to buy subordinated debt.

So you'll be able to carry over the capacity that you had gained in the old bank facility in the new bank facility.

Once again, the terms are not complete, but in general, we should be able to use funds from operations and borrowings that are available to us or drawings that are available to us to repurchase other debt other than bank debt.

Great. Thank you very much.

Thank you. The next question comes from the line of Alex Rygiel with Friedman Billing and Company. Please proceed with your question.

Hello? Hello?

OK. The next question comes from the line of Ric Prentiss with Smith Barney. Please proceed with your question.

I didn't know I had changed companies.

Well, Alex Rygiel has joined John Lehman. So, I think that was a mixup also.

Hi, I just wanted to get in with a follow-up. There was a question coming around with the since we're talking shares and financing. With Michael Garns I know we are registering the shares. Could you just use this as an opportunity to elaborate on what might be going on there?

Michael put in January was disclosed I think in our fourth quarter earnings as well as in our proxy, in our 10K and he received shares for those. He also received some cash. There's other members of the Mexican management team who also have exercised their put right and they'll be receiving those later this year and there's a certain amount that's related to an earn-out they'll be receiving in early 2005. To make this share so they would be ultimately liquid, we put up a registration statement for that for 3.50m shares related to the put exercise.

Was any of that effective within the quarter? Or I suppose it's a second quarter item?

The registration statement, it was just filed with the SEC so it's still being reviewed.

OK. Can you touch on a little bit service margin question, Jim you touched on it a little bit, but that does seem to be a tough business out there and you mentioned you've got some low large end contracts that will continue through the third quarter, the tail of the tower business, but just trying to keep an eye on what is happening there.

The one long-term contract is a holdover from the client divestiture, which we decided to go ahead and play out. It's in the erection stage. Not much left to do but it's a timing issue. So, if there's low margin revenue that will be recognized for the next couple of quarters. On the base business which is the most important, our construction group, it runs into the pricing pressure out there, especially the first quarter when seasonal demand is at its low and we think the rest of the year will be able to have better pricing and slightly better margins. But remember, Ric, we're doing this work to make the customer experience complete on our towers to maintain control of the data and the property. That's why we do that construction work. Not for the margin there.

It's also pretty small compared to the overall scale.

That's right. Some operating margin and we are using that capability to try to drive more Elise to our towers.

Thanks, guys.

You bet.

One more question, please.

Thank you. The last question comes from the line of Alex Rygiel with Friedman, Billings, Ramsey Group. Please proceed with your question.

Hi. Can you hear me? Hello.

Yes.

Hi, this is actually Lynn Cho (ph) for Alex. A quick question. One of your pierce mentioned they saw a dramatic increase in carrier search rings in January another increase in February kind of came back down in March. I was wondering if you were seeing similar trends and may be what kind of underlying things you're seeing to cause those trends? As well as any near to intermediate term opportunities to increase the growth, you know on your existing asset now that you are primarily just a tower leasing company.

We're seeing similar interest in search ring mirn and a lot of those frankly have been re-issued a couple of times. So what we think is important is the sort of the match rate on our towers and we've been matching and closing right within our guidance the tower leasing lease-up that we expected. So, lots of search rings absolute here out there, they're being issued in big chunks by Nextel, Cingular, Sprint, T-Mobile and others. It's a matter of what you do with the search ring and how many it was when we feel good about our performance there.

OK.

To that cover.

And then any additional opportunities you're seeing to kind of increase the growth on your existing assets such as, you know, the distributor antennas, back hauling anything like that.

No, we're 100% targeted on getting broadband customers onto our towers now. We are still pursuing the distributor antenna concept, if that's the stage it's at frankly with the customers, with the concept stage, so, we look at that 18, 24 months down the road. Maybe there are some systems that we can pull together multiple customers onto. But almost 100% of our activity is based on our traditional core business an it's healthy right now. So that's where we're focused.

Great. Thank you.

With that, we just like to thank everyone for participating in the call.

Yes. Thank you.

Have a good day.