Nov 6, 2008
Executives
Fiona McKone – VP of Finance Jay Brown – SVP and CFO Ben Moreland – President and CEO
Analysts
David Barden – Banc of America Brett Feldman – Barclays Capital Rick Prentiss – Raymond James Jason Armstrong – Goldman Sachs Brad Korch – Credit Suisse Gray Powell – Wachovia Michael Bowen – Piper Jaffray Batya Levi – UBS Dave Coleman – RBC Capital Markets
Operator
Good morning, ladies and gentlemen and thank you for standing by. We do apologize for the technical difficulty.
Welcome to the Crown Castle International Corp. third quarter earnings conference.
(Operator instructions) This conference is being recorded today, Thursday, November 6, 2008. I would now like to turn the conference over to Fiona McKone, VP of Finance.
Please go ahead, Madam.
Fiona McKone
Good morning, everyone. We apologize for the delay.
This is probably why I like the wireless business, sometimes landlines can be challenging. Thank you all for joining us as we review our third quarter 2008 results.
With me on the call this morning are Ben Moreland, Crown Castle's CEO; Jay Brown, Crown Castle's Chief Financial Officer; and John Kelly, Crown Castle's Executive Vice Chairman. To aid the discussion we have posted supplemental materials in the investors section of our web site at crowncastle.com, which we will discuss throughout the call this morning.
This conference call will contain forward-looking statements and information based on management’s current expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to have been correct.
Such forward-looking statements are subject to certain risks, uncertainties, and assumptions. Information about the potential factors that could affect the company’s financial results are available in the press release and in the risk factors sections of the company’s filings with the SEC.
Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. In addition, today’s call includes discussion of certain non-GAAP financial measures, including adjusted EBITDA, recurring cash flow, and recurring cash flow per share.
Tables reconciling such non-GAAP financial measures are available under the investors section of the company’s website at crowncastle.com. With that, I will turn the call over to Jay.
Jay Brown
Thanks, Fiona and good morning, everyone. As you’ve seen in the press release, we reported another strong quarter of results.
I would like to take you through the results for the quarter, our outlook for the fourth quarter of 2008 and full year 2009 as well as make some comments regarding our capital structure. During the third quarter, we generated revenues of $384.3 million, up 9% from last year.
As highlighted on slide 3 of the presentation posted on our web site, site rental revenue increased $27.2 million to $354 million, or up approximately 8% from the third quarter of 2007 and in line with our target. Substantially all of this growth was achieved through organic revenue growth across the towers that we owned as of the third quarter of 2007.
Service revenue was $30 million, up approximately 22% from the same period last year. Gross margin from site rental revenue defined as tower revenues less cost of operations was $238.2 million, an increase of $23.3 million or up 11% from $214.9 million for the third quarter of 2007.
Adjusted EBITDA for the third quarter of 2008 was $217.7 million, an increase of $21.9 million, or up 11% from the third quarter 2007. Recurring cash flow defined as adjusted EBITDA less interest expense, less sustaining capital expenditures increased 23% or $22.7 million to $123.5 million from $108 million in the third quarter of 2007.
Recurring cash flow per share grew 22% from $0.36 in the third quarter of 2007 to $0.44 in the third quarter of 2008. I believe our third quarter operating results demonstrate our ability to consistently growth revenues and cash flow even in these challenging economic times.
During the quarter, capital expenditures were $140.3 million. Sustaining capital expenditures totaled approximately $6.1 million.
Revenue generating capital expenditures were $134.2 million. This was comprised of $63.8 million for land purchases, $21.7 million of CapEx for revenue enhancing activities on our existing sites, and $48.7 million of acquisition and construction of new sites.
Turning to the balance sheet as of September 30, 2008, we had securitized tower revenue notes totaling $5.3 billion and other debt totaling approximately $800 million, for total debt at the end of the quarter of $6.1 billion. We also had $314.5 million of our 6.25 convertible preferred stock outstanding as of September 30, 2008.
During the third quarter, holders converted $63.7 million of the 4% convertible senior notes into 5.9 million shares of common stock and as of September 30, 2008, there were no 4% convertible senior notes outstanding. As of September 30, our consolidated leverage ratio measured by a total debt to adjusted EBITDA was seven times comfortably within our covenant of 8.25 times.
Consolidated interest coverage was 2.6 times at September 30 compared to 2.2 times at the same period last year and well above our covenant of 2 times. I would also point out that we are not exposed to short term interest rate fluctuations has 97% of our debt is fixed rate.
Further our debt does not contain any rating triggers that would increase the interest coupons on the existing debt, accelerate the maturities, create events of defaults are violate any of our debt covenants. Moving to the outlook for the fourth quarter of 2008, fourth quarter site rental revenue and site rental gross margin outlook are expected to be negatively impacted by approximately $7m and $5 million respectively due the significant decrease of approximately 30% in the Australian dollar exchange rate over the last 3 months.
Our July outlook assumed a 0.94 U.S. dollars to 1.00 Australian which has since been adjusted to 0.64 U.S.
dollars to 1.00 Australian. We expect sites rental revenue for the fourth quarter of between $350 million and $355 million.
Site rental gross margin for the fourth quarter of between $235 million and $240 million. And adjusted EBITDA for the fourth quarter of between $217 million and $222 million.
And interest expense of between $87 million and $90 million. We expect sustaining capital expenditures to be between $11 million and $13 million, and recurring cash flow to be between $118 million and $123 million.
We have also updated our full year 2008 outlook to reflect the decrease in the Australian dollar exchange rate. As you seen in the press release and shown on slide 4 of the presentation we have also provided full year 2009 outlook and expect site rental revenue and adjusted EBITDA growth on a current mutual basis to grow approximately 8% and 10% respectively consistent with the growth we forecasted for this 2008.
For full year 2009 we expect site rental revenue of between $1485 million and $1500 million. Site rental gross margin to be between $1,015 million and $1030 million.
We expect 2009 adjusted EBITDA to be between $925 million and $945 million and interest expense to be between $355 million and $360 million. We expect 2009 sustaining capital expenditures to be between $25 and $30 million.
We expect recurring cash flow for the full year 2009 of between $540 million and $560 million. Before I turn the call over to Ben, I would like to make a few comments on our capital spending plans and upcoming debt maturities.
Since we reported our second quarter results there has been a significant deterioration of the credit markets. As a result, we have made changes to our capital spending plans in order to deal -- prudently deal with our upcoming debt maturities.
As shown on slide five, we have significantly reduced our forecasted levels of capital spending without compromising our customer relationships, our ground leases, or our revenue growth. While we are completing the majority of the individual projects that we have underway given the incremental high returns of these projects we have dramatically raised our internal hurdle rates for the approval of new projects that require capital spending.
We would expect to reduce capital spending by approximately 40% in the fourth quarter 2008 with more significant reductions beginning in the first quarter of 2009. In 2009 we expect to invest approximately $150 million to $200 million of capital in the highest returning activities around our core business.
We will continue to appropriately maintain our assets and spend the capital required to install new tenants on our towers. Further, we will continue to build and acquire towers and purchase land beneath our towers albeit at a significantly reduced level.
The projects that we’re no longer pursuing provided attractive financial returns when our cost of capital was significantly lower than the current levels. The activities that are being reduced are discretionary in nature and we now expect to allocate our capital towards debt reduction which I will describe in greater detail in just a moment.
With regards to our land lease extension program which represents our largest investment of capital over the last two years we have modified our approach to focus more on lease extensions rather than land purchases. Having completed approximately 6000 transactions we believe that we have the best portfolio of ground leases in the tower industry based on the land ownership and final ground lease exploration.
Over the last several years approximately 35% of the transactions we have done were land purchases and 65% were lease extensions. As of today we own or control for more than 30 years the land beneath covers million representing approximately 52% of our gross margin.
We currently own 23% of land beneath our U.S. towers and the average term remaining on our ground leases is approximately 30.5 years.
We believe this is a very important long-term effort that we should continue because it protects our assets and controls our largest operating expense. Currently we are incurring approximately $12 million of annualized G&A to work on extending the length of our control of the ground beneath our towers and improving our operating position.
In better capital markets, purchasing land provided an attractive financial return. But today, we believe that lease extensions generally provide a more attractive return.
Typically, these lease extensions result in a very minimal increase in monthly cash rent but the rent expenses on a GAAP basis increases as we have to straight line the future escalations over the new longer-term of the lease. By shifting our focus away from land purchases, we will free up capital for debt repayments while continuing to lengthen our ground leases.
Turning back to the balance sheet, I want to spend a few extra minutes describing in detail the various components of our debt instruments. I would like to go through each debt instrument with you to ensure that everyone clearly understands the debt maturity schedule and the flexibility inherent in our balance sheet.
As you can see on slide 6, we have $472 million of debt maturities in 2009, which is comprised primarily of our revolving credit facility due in January 2009, which is currently drawn approximately $170 million and our 2004 mortgage notes of $294 million which mature in December 2009. We expect to end 2008 with approximately $75 million of cash balances that could be used to repay a portion of the revolver.
The revolving credit facility is a 364 day facility and is a part of our Crown Castle operating company credit facility. We are working with our bank group to renew this facility for an additional 364 days per the terms of the operating company credit agreement.
Based on my current discussions I am confident that we will be able to renew this facility albeit at a higher credit spread more reflective of some current market conditions. Depending on how our conversations with the banks proceed we may decide to reduce the total revolver to something less than $250 million.
A reduction in our total revolver will not impact our ability to operate our business. With respect to the maturity of the 2004 mortgage notes of 294 million due in December 2009, we have modified our internal capital spending plans for 2009 as I just described and expect to accumulate enough cash from operations to fully repay these notes by the maturity date.
Further, we expect to accumulate enough cash from operations in 2009 to repay any remaining amounts that are drawn under our revolving credit facility. Based on our expectations, this would mean we would not need to access the credit markets during all of 2009.
As we look further down the timeline of our debt maturities our next maturity would be the 2006 mortgage notes of $1.55 billion in February 2011. These notes are secured by the majority of the legacy Global Signal assets.
Based on our current expectations of cash flow generation between now and February 2011, we would expect to be able to accumulate approximately $500 million of cash or one-third of the mortgage notes by the maturity date. This would leave less than 4 times leverage on these assets, which is within the level of leverage that all 3 of the public tower companies have been able to finance at the AAA level.
With regards to the most misunderstood portion of our balance sheet, our senior secured tower revenue notes of $1.9 billion and $1.55 billion which are secured by the legacy Crown Castle assets, the final maturity date on those notes are 2035 and 2036 respectively. Under the terms of those notes, there are certain provisions which provide for the expected refinancing of the notes in June 2010 for the 1.9 billion and in November 2011 for the 1.55 billion.
If we do not refinance the respective notes by June 2010 and November 2011, the interest rates on the notes increased to approximately 10% and the notes begin to amortize by an amount equal to the excess cash flow produced by these secured assets until all the notes are refinanced or repaid. In 2005, when we began to issue our debt in the structured market, we intentionally negotiated these very provisions to provide us with a significant amount of flexibility in difficult credit markets such as exists today.
Another benefit of these notes is that once we’re past the expected refinancing dates there is no prepayment penalties which means that at any point 2010 and 2035 or 2036 we can refinance without any penalty. In the current environment this is a very attractive alternative.
I would note that last week Verizon issued 30 year A rated bonds with a yield of approximately 9%. To be clear if we do not refinance the 1.9 billion and the 1.55 billion of senior secured notes by the aforementioned dates in 2010 and 2011 there is no event of default, no cross defaults that are triggered in any of our other debt instruments and principal amortization is limited to the amount of excess cash flow produced by these secured assets.
While we would expect to see an improvement in the credit market sometime in the next 2 to 3 years, allowing us to refinance these notes we are under no obligation to do so and we are in the very fortunate position of having up to 25 years to repay more than 50% of our debt outstanding. As shown on slide 7, given the growth nature of our business, our balance sheet delevers very quickly solely for the purposes of illustration and not providing specific Crown Castle outlook for the next 3 years, we have calculated our pro forma leverage on the graph on the right hand side of the page using Wall Street analyst consensus growth estimates.
If we limit our discretionary investments to approximately $150 million per year and repay debt at par we would expect consolidated debt to consensus adjusted EBITDA to be approximately 4 times by February 2011. If the credit markets remain in the current state with limited liquidity we will manage our expenditures and balance sheet to deliver along this path.
Over the last several weeks, I have had a number of people ask me about our long-term appetite for leverage, I think there are two important considerations in determining the appropriate amounts of leverage on our business. The first consideration is the maturity of the debt and while they can no assurances of how or when the credit markets will recover we will look to latter our maturity schedule similar to the later rate we had achieved in the legacy Crown Castle balance sheet prior to the Global Signal acquisition.
The second consideration is the stability of the cash flows to service the debt. Our revenues are produced by long-term leases form high quality tenants to provide the critical highly desired wireless communication networks used by over 80% of the US population.
Our towers are essential infrastructure. We are to wireless communications what airports are to air travel.
Wireless communication networks has today depend on our towers. The stability of our revenues provides us with the opportunity to appropriately lever our business to enhance the long-term returns of our equity holders.
As we have discussed over the years we believe that limiting our adjusted EBITDA to interest expense to no less than 2 times coverage is an appropriate target as it naturally adjusts the amount of nominal debt that we borrow based on interest rates. As we consider the debt to adjusted EBITDA leverage level at which we will operate our business long-term it will be a function of the maturity schedule that we can achieve as well as prevailing interest rates.
I don’t think it is wise to commit to a level of leverage during what many consider the worst financial market in many decades. But I think it is helpful to provide a framework through which we will evaluate future leverage on our business.
However, I will reiterate that until the credit markets improve, we plan to reduce our capital spending and eliminate short-term maturities with cash flow. As I considered the segment and stable cash flow that our business produces, the discretionary nature of our capital spending and the terms of the indebtedness, I am comfortable that we will be able to prudently navigate the difficult credit markets an address our debt maturity schedule without impact on our core growth or the execution of our business.
With that, I will turn the call over to Ben. Ben.
Ben Moreland
Thank you, Jay, and thank you everybody joining us on the call. Before I turn the call over for questions there are two things I want to communicate very specifically on this call this morning.
First, we are very comfortable with our balance sheet and our plan is to deal with the short term debt maturities as Jay has just outlined. Secondly, we remain very enthusiastic about the future for wireless and the growth that suggests for our business.
While we are facing a weakening economy and challenging capital markets I would like to remind you that under the current management team Crown Castle successfully weathered a similar disruption in the capital markets in 2002 when by all metrics we were a much weaker company. To put it into context as shown on slide eight in June of 2002 leverage was almost 11 times EBITDA.
Interest coverage was one time and we had no recurring cash flow. Today we are seven times leverage right in the middle of our historical target range of six to eight times.
We have interest coverage of 2.6 times and annualized recurring cash flow is almost $500 million. Today we’re at a significantly stronger company operationally and considerably less levered.
As Jay has mentioned we have made adjustments to our discretionary capital spending, eliminate our short-term debt maturities in 2009 as an appropriate reaction to the current credit environment. Notwithstanding the challenging environment it is important to remind you that our business remains strong characterized by longtime contacted revenues, solid growth in our core business, and exciting underlying fundamentals in the wireless industry.
In fact recall that at any given time approximately 97% of our revenues for the upcoming twelve months or already contracted and this is true for 2009 as well. I like to make a few comments on some of the important industry trends and the statistics we’re seeing.
As many of you are aware wireless remains the strongest growth market in telecom today. A according to recently released CTIA semiannual surveys total reported wireless data revenues increased to 42% in the 12-month through June 02, 2008.
This current market is worth approximately $30 billion annually to the big 4 wireless carriers. During the recent third-quarter calls Verizon and AT&T stated that wireless data revenues in the quarter grew 42.5% and 50% respectively year-over-year and wireless remains the carriers’ most important business segment.
In fact, Verizon Wireless stated that 70% of their growth came from wireless data. The growth in wireless data revenue is driven by the increase in integrated devices that consumers are signing up for in data plans.
Smart phone penetration grew to 21% in the third quarter up from 16% in the second quarter survey. Notwithstanding the service today only approximately 18% to 21% of the big four subscriber bases have smart phones indicating that we’re still in the early days of smart phone and data plan adoption.
As AT&T noted in their third-quarter call while the number of 3G devices has increased 2.5 times from 7 million to 17 million on their network in the last year this still only represents less than a quarter of their total subscriber base. As most of you will have read 2.4 million 3G iPhones where sold and activated in the third quarter of 2008.
Using an average iPhone user as a proxy for an integrated wireless device user iPhone users are ten times more likely to search the web from their phones and consume six times more data. Devices that compete like the new G1 and the BlackBerry storm are expected to contribute to the growth in wireless data traffic and will drive strong data growth.
Average revenue per user or ARPU on smart phones is 48% higher than other devices. And while data ARPU is 147% higher according to one Nielsen data.
Accordingly we’re pleased to see the carriers gaining incremental returns for their 3 G network investments. We believe these trends bode well for our industry as carriers invest in their networks to support these data centric bandwidth intensive applications, and capture this significantly higher ARPU.
Finally the rate of replacement of land line phones with wireless phone continues to accelerate. More than one in four cellular customers in the U.S.
no longer have a land line phone. According to J.D.
Powers and Associates for which for the first time (inaudible) 25%. Approximately 20 million U.S.
households that are wireless tend to use their wireless phones 45% more than those with land line service. As customers choose wireless exclusively over land line phones particularly in this economic climate the need for wireless data enhancements delivered through our sights continues to increase.
To wrap up we’re very excited about the growth prospects for our core business. We expect to add at least as many releases in 2009 as we have in 2008 even in this challenging economic climate.
Despite the challenging capital markets we’re comfortable with our balance sheet and our ability to address our short-term maturities as we have outlined on this call. As I mentioned this is the same team that has navigated the balance sheet challenge in 2002 and Crown Castle’s current situation bears no resemblance to that era.
We have not forecasted in our outlook any benefit from interest expense savings from the anticipated use of cash to repay debt which would obviously raise our expected growth rate in a recurring cash flow per share. We have positioned this company very deliberately for growth as shown on shown on page nine of presentation.
We grow recurring cash flow per share faster for a given dollar of revenue than our peers. Simply due to how we are allocating capital over the years.
Even if we are witnessing a permanent repricing of credit in the market compared to historical levels this relationship of growth and recurring cash flow per share compared to our peers will be maintained. With that operator we’re pleased to turn it over for questions.
Operator
(Operator instructions) And our first quarter comes from David Barden with Banc of America. Go ahead please.
David Barden - Banc of America
Hi guys, thanks a lot. A couple of questions if I could.
First, Jay just on the bank line, I guess, you have a $472 million of what you outlined was maturities through the end of ’09, but you are also working on the bank line. So, I guess I just wanted to be clear that that assumes that if you can’t refinance the bank line with those -- that that $472 is the maturity.
If you can’t refinance some or all of the bank line that that number goes down. The second piece would be Ben you kind of hinted at the very end that there is an opportunity to kind of go into the market and maybe acquire securities, could you kind of frame how that happens, do you have to wait for people to approach you with swap opportunities?
Can you go into the market and just bid for them presumably, you know, who holds them and you presumably if the market is that tight you would be the only buyer out there to probably name your price. And then the last thing, third would be just in terms of the guidance outlook, obviously people are going to be interested in as WiMAX in there, as T-Mobile’s 3G network in there, kind of what are the pieces and parts of the guidance are, it will be great, thanks?
Jay Brown
Good morning Dave. Thanks for the question.
On your first question the $472 million that we assumed in the forecast there in terms of debt maturities would be the $295 of the December ’09 maturities of the (inaudible), a $170 million related to the revolver and our assumption there is that we roll the revolver in January 2009 but would then save enough or accumulate enough cash during the full year 2009 to fully repay any amounts drawn. So, we have taken the conservative approach that we will fully repay it by the end of 2009 and then the other $7 million would be amortization related to our term loan.
David Barden - Banc of America
Got you.
Ben Moreland
But we are assuming just to be clear that we are going to ahead and roll it here in the coming weeks and then you go into ’09 on the assumption that you pay it off as you said Jay.
David Barden - Banc of America
And we will be looking for an announcement on that in the next couple of weeks?
Ben Moreland
We are working on it.
David Barden - Banc of America
Okay, thanks.
Ben Moreland
Secondly Dave on your other questions on buying debt. I am not going to comment a lot about that for obvious reasons.
I will just remind you that in the play we ran in 2002, we bought a lot of high yield notes back at big discounts and it created a lot of value for the company. So, I think we have an opportunity going forward that it is not in our outlook at all because I don’t want to -- we obviously don’t forecast things until they are done, but we have an opportunity in the ill liquid credit market at this point and put some cash to work as we have discussed.
With respect to outlook for 2009 on leasing, I would say we have got WiMAX in there in a very modest way and modest would be modest. We will primarily expect to see for example, a lot of Clearwire activity after their transaction is closed.
We are pleased to see the approval of that and the shareholder vote gets scheduled but we would expect potentially some upside from but it is a not big contributor to the future for 2009. You mentioned T-Mobile for example, having a big year.
I think as many are with T-Mobile, T-Mobile is making substantial investments to improve their network, building out a 3G network as well as roaming over builds and so we are seeing a lot of activity from them and some of that clearly continues into 2009, and others are continuing as well. As I mentioned, we have a -- as we do our analysis looking at all of our internal tools as well as our applications in the pipeline and customer conversations we are having, we believe we have a very good shot at doing more leasing in 2009 in total than we did in 2008.
That can change, obviously things move around and timing slips sometimes but right now our view is that we appear to do a little bit better in 2009 than 2008. So, we remain very enthusiastic and I think you can see from the carriers results here over the last couple of weeks that wireless continues to grow and it is profitable growth which is very important to us as we mentioned.
It is obviously very important at the incremental returns on this capital investment that the carriers are making show up and that is actually happening. So, we feel very pleased with our forward outlook right now.
David Barden - Banc of America
Right. Thanks guys.
Operator
Okay thank you. And our next question comes from Bret Feldman with Barclays Capital.
Go ahead please.
Brett Feldman - Barclays Capital
Hi, thanks for taking the question and thanks for Jay for all the detail around each one of the debt securities. I want to have one follow up on that.
You did a really good job talking about the meaning of the expected repayment dates on I guess on the sort of legacy Crown Castle securities, on the legacy asset backed stuff that you got from Global Signal, I know you are going to pay the first one off, but the second one, is that due date that you are talk about is that a firm maturity date or is there actually some flexibility to extend the repayment of that?
Jay Brown
Hi, good morning Brett. Thanks for the question.
There is some flexibility on the February 2009 date -- 2011 date. If would require us to go out and have a conversation with the servicer on the notes as well as the trustee on the notes and they would have to make the decision that the cash flows were sufficient to amortize the debt over a period of time .What I would describe that as if puts some discretion as to how the -- how those notes are dealt with in the hands of a third party, which is something in this market we are just not going to take the risk of.
I think in a normal market most would tell you that that is the reasonable approach and that the servicer and the trustee would work out a reasonable (inaudible) to amortize those debt -- that debt with the excess cash flow but we are going to focus the business and get ourselves in our position to repay or refinance those notes by the time we get to the maturity date. There is some flexibility there but we are not planning on or resting or relying on the flexibility that that is there.
Brett Feldman - Barclays Capital
Okay, that is helpful and then let me know if my math here is right, you said that you expect to end the year with $75 million of cash, but looking where your cash position was at the third quarter and looking what your cash flow guidance is for the fourth, it seems you would actually end the year with more like a $190 million. So, the variance I guess is the discretionary dollars that you intend to spend in the quarter.
Is that correct?
Ben Moreland
That is exactly right.
Brett Feldman - Barclays Capital
So, $190 million would obviously be enough to completely pay down the amount outstanding in the revolver. So should we assume that based on the fact that you are still comfortable spending money that is an indication of the types of assurances and the progress you have made with your vendor group?
Ben Moreland
Brett as I said in my comments I am very comfortable that we are going to be able to roll the revolver for another 364 days. So that is a good working assumption.
Brett Feldman - Barclays Capital
Okay, and then just one last one about the guidance -- actually for the 2008 guidance, you talk about how foreign exchange can create like a $7 million headwind on reaching revenue and about $5 million headwind on the tower cash flow. When I look at the way your guidance was adjusted, the midpoint of your full year leasing revenue I estimate is essentially the same but there is a $7 million decrease in the tower cash flow.
So, you could maybe walk us through the moving parts of (inaudible), I am wondering if it has to do with the lease extension?
Ben Moreland
It does. It is actually not the lease extension.
The delta there is in the third quarter actual results we didn’t come in at the high end or above our range because of the currency decrease. So the comment that we made in the press release and my comments in the prepared remarks reporting to the impact of the currency for the full year.
So, the impacts there are really both impacting third quarter actual results as well as fourth quarter and the movements there are between site rental revenue and all the way down to adjusted EBITDA or tower cash flow or a function of where the numbers came out in those areas categories in both the third quarter and the fourth quarter.
Brett Feldman - Barclays Capital
Okay, great. Thanks for taking those questions.
Ben Moreland
You bet.
Operator
Okay thank you. And our next question comes from Rick Prentiss with Raymond James.
Go ahead please.
Rick Prentiss - Raymond James
Hi guys.
Ben Moreland
Good morning.
Rick Prentiss - Raymond James
A couple of questions for you. You mentioned the cash balance at year end at $75 million.
Where you would be kind of comfortable kind of long-term keeping your cash balance and remind us again what restricted cash is?
Jay Brown
We would probably be comfortable keeping cash at least $50 million that is how we have run the business. In this environment we may decide to keep cash balances a little higher than that closer to the 100 range.
In terms of the restricted cash, that is really a timing issue. We collect rents around the last day of each month and then the cash is released out of the structured entities around the 15th of the following month.
So, the cash sitting on the balance sheet that you see at the end of any given quarter that restricted cash is basically paid out to us within 12 or 15 days. So, I would consider that restricted cash is basically gone within a few days to pay the direct operating expenses and probably not meaningful for anyone’s analysis.
Rick Prentiss - Raymond James
I think that is important because we had some people wondering if that was in a locked box and it is really not.
Jay Brown
Yes, it is only there for about 15 days and then it goes to pay the direct expenses associated with the towers?
Rick Prentiss - Raymond James
Right, and then on the guidance the WiMAX in a modest way, are you assuming Clearwire is a new tenant, an amendment tenant. They have made suggestions that they can use some of the Sprint Sites, I think American Tower was kind of mentioning amendment revenue from Clearwire.
What are your thoughts as far as amendment versus new rent?
Ben Moreland
I think Rick it remains to be seen a little bit. We expect they are going to be some of both.
We would expect they would access Sprint Sites where that makes sense and then in the single installs where that also makes sense based upon their engineering and architecture of their networks. So, I think it is a mixture.
We couldn’t tell you exactly how that is going to come out but I think it is a mixture that we will benefit from given the Sprint tower exposure we have as well as the concentration of sites in the top 100 cities.
Rick Prentiss - Raymond James
And (inaudible) went on to kind of quantity, you said Clearwire not a big number in ’09 by the time it gets closed and through the pipeline, (inaudible) said kind of $1.5 million worth of revenues what they talked in there. Is your number of a similar magnitude on a percentage basis given your business?
Jay Brown
Rick Prentiss - Raymond James
Nice thing in this business is that it has pretty good visibility usually. One other quick question, on the debt back in Barden’s question, can you tell us, it is hard for us to figure out, but can you tell us where you think your debt is trading out right now.
Is it kind of in the $0.70 and $0.80 on the dollar or where is it at right now?
Jay Brown
Yes, Rick it is a function of the tranche or the rating on the various tranches of the debt and 70 to sort of mid 80s is a pretty good range of our various debt components depending on the maturity of the instrument.
Rick Prentiss - Raymond James
And then I have noticed on your slides you mentioned the difference in guidance from tower counts to adjusted EBITDA, you mentioned on one of the slides $4 million less on service business margins, just because of the choppiness or what else is going on there, anything?
Jay Brown
Yes, Rick typically that is what we do. We are fairly conservative in terms of how we forecast services gross margin.
You saw that in 2008 we benefited down in Australia from some services gross margin and we are not forecasting that to our current 2009. So that is really the reason we took it down by (inaudible) or sort of a one time event that we can’t forecast.
Rick Prentiss - Raymond James
Okay, thanks guys.
Operator
Thank you and our next question comes from Jason Armstrong with Goldman Sachs. Go ahead please.
Jason Armstrong - Goldman Sachs
Hi thanks a lot, good morning. A couple of questions, maybe just one more on the debt structure, ruling the bank line, or the bank line seems like it is obviously eminent, and obviously there is going to be higher rates attached to that.
A lot of this are obviously going to sort of use that as a gauge or sort of a best near term indicator where the cost of capitals we will be setting for this company. So, can you give us a sense in your conversations just is there sort of a basis point step up relative to legacy rates we should be thinking about.
And then second question just related to the guidance and sort of the current revenue performance, you guys have had a little bit of a drag from some narrow band exposure through the legacy core signal assets, where actually the core trends you are reporting are better than what we actually see. I am just wondering as we look into ’09, what is the base of narrow band exposure right now and what is sort of built into the guidance in terms of how quickly that declines.
Thanks?
Ben Moreland
Good morning Jason. I will take the first question.
In terms of -- and I appreciate where you are trying to go here and get a sense of where we are going to end up on the revolver, given that I am currently in discussions with the banks I am going to beg off your question. I will point out that we have only drawn $170 million.
So, we will see where the spread ultimately comes out, but it is just not going to have a meaningful impact on our overall balance sheet and I would also probably caution you against implying that against the entire capital structure, 50% of the debt as we noted is going to roll over assuming we don’t refinance that. It is about 10% and there are a number of issues that have been done in the market over the last couple of weeks by high grade issuers that give you a sense of where credit spreads are.
I think as I noted in my comments, this the only piece of capital that we would expect access the credit markets related to in all of 2009 and the first time that we would really be in the market trying to price a new piece of debt would just be the $1 billion of $1550 million of GSL notes which is not until February 2011. I am certainly not (inaudible) to be able to give you guidance on where the spreads in 2011 are going to look like on our capital structure.
So, I wouldn’t want to take -- I wouldn’t want to take whatever we do here in the next few weeks to be an indication of long-term what our cost of debt is. You will take the guidance question.
Jay Brown
We started 5 years at 5% then you rolled the 10 years for 5%. I guess that will be 7.5% for 10 years.
So not at all bad if the world really is at that level which is hard to imagine. Jason your question on narrow band, I think we mentioned it at your conference a little bit on the web there.
We do have some churn in the business. Some of the narrowband churn that is into this year and into 2009.
It spikes in 2009 that is all implicit in the guidance. Couple of big contracts in fact that are already negotiated and certainly what we were aware off but that is implicit in the guidance that we have here today and we believe that 2009 is the peak of that by some significant margin.
I am certainly not going to get into 2010 guidance on this call, but it certainly appears to us today that the peak year is clearly 2009 and I will just leave it at that.
Jason Armstrong - Goldman Sachs
Okay and Ben if I could just follow up, because it seems like from some of the prior comments I think you started with about $40 million of initial exposure. Obviously you worked down some of that.
But if ’09 is the peak, you know we could literally be talking about another sort of 1% revenue drag from that alone, which would mean that the core guidance here and what is actually going on in the business would be a percentage point better than what your actual guiding, is that the right way to think about it?
Ben Moreland
That is a very fair characterization.
Jason Armstrong - Goldman Sachs
Okay, great thanks.
Operator
Okay thank you. And our next question comes from Brad Korch with Credit Suisse.
Go ahead please.
Brad Korch - Credit Suisse
Hi, thanks for taking the question. Just have one quick follow on to David’s question on leasing activity.
There seem to be lot of discussion lately around the potential for lower CapEx budgets coming from the carriers and I think our thoughts are that wireless would be kind of last place they would look to cut. I am just wondering if you have seen anything in conversation with them or body language that there could any reductions going forward?
Ben Moreland
Brad, thanks for the question. No, in fact we haven’t.
We are very close to our customers. We are having ongoing dialogue with a number of the actives as well as those anticipating building out new markets and new service and we don’t see a significant cut in CapEx for all the reasons that I covered in my prepared remarks as well as even covered better covered by themselves on their own calls.
This is a growth business. It is economically viable.
You are able to see as I mentioned on our calls in many other meetings we have talked about where we watch very carefully the results of our carriers to make certain that their incremental returns are there from the incremental spend and that is clearly what is going on today. You could also even convince yourself probably that in a recessionary environment you have increased wireline churn which becomes -- which puts even more reliance on the utility like nature of wireless service.
you know, just small anecdote here in the Houston in the hurricane, wireless was the only thing that worked. We didn’t have electricity, we didn’t have cable, we didn’t have hotline phones, because of all the trees on lines.
So, it has become an essential utility as we have all witnessed and we provide the infrastructure for that and we don’t see any evidence of any slowdown of capital spending to accomplish those goals.
Brad Korch - Credit Suisse
Okay, thanks Ben.
Operator
Gray Powell - Wachovia
Thanks. Good morning everybody.
Ben Moreland
Good morning Greg.
Gray Powell - Wachovia
Just had a few quick questions. I know that you guys can’t talk too specifically about carriers, but can you just give us some idea as to the level of conversations that you are having with both Clearwire and Cox Cable on their deployments next year and then how quickly do you think each one of them gets started on their deployments?
Ben Moreland
Well, as you know Greg, we are just not going to get into violating confidences of customers. What they want to say to the market they can certainly say.
You should be assured that we are in active dialog with both companies and expect to see exiting build outs from both companies based upon the investments they have made to-date and in the case of Clearwire closing their transaction and so we expect and believe that is going to happen but we probably would not get into any specific conversations with the above markets and pace and how many sites, that is really for them to describe and I think have in certain respects and we will be happy to accommodate them as go forward into 2009.
Gray Powell - Wachovia
Okay, fair enough. And then just -- I mean on Clearwire and Sprint both of those companies have at least formally launched a decent number of WiMAX markets in 2008.
Have you seem much leasing demand associated with those launches, or was it a situation where most of the sites were already turned down the tower back in late 2007 and they are just now like officially launching the market.
Ben Moreland
Well, they really haven’t launched a lot of markets and we did a decently significantly amount of leasing with Clearwire in the 2006, 2007 timeframe, but obviously today they are working on planning for their launch in the new Clearwire with they capital that they are expecting to bring into the company here at the end of the year. So, we do have a nice book of business with them today.
We expect it will increase significantly going forward but has it been a real active year, this year for obvious reason?
Gray Powell - Wachovia
Okay that makes sense. I think then last question, I mean if I look at leasing demand trends in 2007, it was fairly backend loaded, 2008 more evenly spread out.
How do you think 2009 looks?
Ben Moreland
Best we can tell pretty spread out. No big huge spikes, you know, we think we see continued steady builds on the part of the large wireless carriers and then we see potential for things like Cox and things like Clearwire like we have talked about that we hope get started here in the front half of 2009.
But generally a pretty steady year is what we would say and no real indicated sort of spike. The one thing about this business, the thing about this business, remember we always talk about because of the way the leases come on over sort of the half year convention, it is very hard to detect, you know absent flows frankly in leasing, it is just -- it is handful of million dollars against a very large run rate today.
So it is one of the great features of the business today.
Gray Powell - Wachovia
Okay, thank you very much.
Ben Moreland
You bet.
Operator
Okay, thank you. And our next question comes from Michael Bowen with Piper Jaffray.
Go ahead please.
Michael Bowen - Piper Jaffray
Okay, thank you. I am sorry for any background here.
I am in transit. But couple of questions, back on the debt are there any covenants that we need to think about (inaudible).
Second question, at the PCIA conference last month there were several tower build companies talking about the weight of the Clearwire equipment, kind of how that was going to potentially necessitate a lot of retrofitting of towers. If that is the case, if you could give us an indication on that that will be great, but if that is the case, can you pass on that retrofit cost to the customer.
And then last question, I didn’t hear, if you could give us a tenants per tower that will be great? Thanks.
Jay Brown
Sure Michael, I will hit the first one and then Ben can take the -- your second and third question. On the covenant side, I mentioned there are two consolidated covenants would be our consolidated debt-to-EBITDA that covenant is 8.25 times.
We are currently 7.0 times and obviously on a path to go down significantly from there given our capital spending plans and aim of using cash flows to repay debt during 2009. The second ratio at the consolidated level would be interest coverage.
The convent is 2.0 times and we are at 2.6 times. So, we have got plenty of margin on each of those covenants are would not expect to be close to either of them.
As I mentioned there are no rating triggers in any of our debt of acceleration and then related to our structured notes to the extent they roll on to the refinancing date. There is no cross default.
So, I don’t think there is -- at this point there is any covenants that were anywhere close to and no reason to be concerned about covenants.
Ben Moreland
Secondly on the Clearwire build specifically, probably won’t get into their specific configuration. We will let them talk to you about that, but it is common practice in our case to negotiate capital contributions to pay for some and up to in certain cases all of the capital required to upgrade size to accommodate the configuration of a customer.
It is deal-by-deal specific negotiations depending upon location and quality of the site and what the competitive landscape looks like. So, I can’t give you any more than that other than to say we have gotten over the years and continue to get significant capital contributions towards this tower augmentation activity and we would expect that -- and we don’t see any reason why that should abate.
These sites are continuing to become more and more loaded and it is taking capital to accommodate the additional tenancy. That is as Jay mentioned in his notes.
We will continue to spend capital on our highest returning activities that is the highest returning activity in the company obviously because it brings a new long-term contract to the company. On the tenants per tower, physical tenants per tower are approaching about 2.7, 2.8 and on a revenue basis we are over 3 –
Jay Brown
About 3.25.
Ben Moreland
About 3.25 on a revenue, BBE basis, if you go back to that old vernacular, but on a physical tenant it is about 2.7, 2.8 tenants per tower. That doesn’t really tell you the whole lot.
That is the only problem because you know you have sometimes multiple installations from the same tenant. So, I think the root question that you are asking is capacity.
Do you have capacity for these additional tenants and the answer is absolutely. We very rarely and in fact I can say almost never run across a situation where the physical loading capacity of a tower is the impediment to getting a tenant on the site.
In fact we have gotten much better with that over the year and find that the spacing and the engineering technology to upgrade these sites has improved dramatically and we are getting pretty good at it and don’t see that as a real impediment going forward.
Michael Bowen - Piper Jaffray
Great, thank you for the granularity.
Operator
Okay, thank you. And our next question comes from Batya Levi of UBS.
Go ahead please.
Batya Levi - UBS
Thanks a lot. I had two questions.
One when contracts come up for renewals given the environment do you think there is any risk for keeping the escalators at the current levels, and also if CapEx numbers are coming down significantly in ’09, what do you think that implies for growth in 2010? Thanks.
Jay Brown
In terms of growth in 2010, I don’t -- we don’t see CapEx levels coming down significantly as we mentioned before. So, we are not going to so much about 2010 as we work on 2009, but given the broader wireless trends that we see around wireless data and ultimately LTE as we get out into 2010, we certainly don’t expect to see any slowdown in the demand for wireless services at the consumer level, which is what ultimately drives our business.
So, you got to really go all the way through to the carrier and say okay, what is going on at the consumer level and as we have talked about on this call, we continue to see very significant demand trends around the consumer devices both in terms of data and voice and wireline replacement activity. So, we would continue to expect, you know, long-term growth to be pretty solid?
Batya Levi - UBS
Just to clarify my question, I meant actually your discretionary CapEx levels coming down significantly?
Jay Brown
Jay Brown
And we have had 1000s that have done that just in the normal course. So, not something we spend a lot of time on.
Batya Levi - UBS
Okay, thank a lot.
Operator
Okay, thank you. And our next question comes from Dave Coleman with RBC Capital Markets.
Go ahead please.
Dave Coleman - RBC Capital Markets
Thank you. Just on your 4-Q sustaining CapEx guidance, is about $12 million, doubled from the previous quarter, anything we can read into that as far as future levels of maintenance CapEx required or is it seasonality.
Then it looks like you picked up about 145 towers in Australia. I was wondering if you could talk about the assets that you acquired or built there.
The economics around those motivation for picking up those towers and then to go back to an earlier question on Clearwire, you know, using an existing Sprint deployment. Would you require Sprint to backstop those leases or would you allow Clearwire just too basically amend the lease without any kind of additional Sprint commitment.
Thank you.
Jay Brown
Okay, good morning Dave. On the first question related to capital spending around sustaining activities, I think I mentioned this on our third quarter call briefly, but we are going through the process of doing a technology refresh, which is a normal every 3 year cycle for us.
Internally, we are just replacing our computers and software.
Dave Coleman - RBC Capital Markets
I guess after this morning we might look at the phone lines too. What do you think?
Jay Brown
Upgrading to vista. So, that is -- we are going to incur a big portion of that in the fourth quarter.
We had thought some of it was going to come in the third quarter but most of it looks like it is going to fall in the fourth quarter and in the beginning of next year, but there is nothing related to our towers really. That is a meaningful change in activity from quarter-to-quarter.
So, I would not expect that to be a recurring or a new level of CapEx on a quarterly basis.
Ben Moreland
In Australia we acquired 140 towers from a carrier -- a carrier in Australia. These are good sites that we are very pleased about that we believe will lease very well going forward and that is what that transaction was.
It was -- it added about 10% to the portfolio in the Australian business and we think it has good long-term potential for us going forward. And we will look to do more.
I mean to the extent we see opportunities to continue to grow that business and the U.S. business, we will certainly avail ourselves of those we talked about on this call this morning.
Specifically around your question around Clearwire and the legal terms of that, again, probably not going to get into that data too much. Clearwire will be a very well capitalized entity going forward with their sort of stellar group of investors coming into that business and we think they are certainly a very viable company and we appreciate having their business going forward.
Dave Coleman - RBC Capital Markets
Just to go back to the Australia towers, can you talk about the multiples paid for it as well as the characteristics, number of tenants on those now as well as the collocation opportunity on those towers?
Jay Brown
Yes, David, it was not a material transaction in the scheme of things. Attractive multiples I will say relative to our trading value, our trading multiples and we have very high expectations for growth around additional collocation in those sites and that is probably all I want to get into given that it was a relatively small transaction but you can be safe in assuming we certainly wouldn’t have done it if we didn’t think it added value and it was accretive long-term there.
With that I think we will wrap the call. I appreciate everyone’s attention, particularly in these uncertain times.
I think you can tell from our remarks this morning, we were pretty pointed to talk about the balance sheet and specifically our enthusiasm for 2009 and the continued growth in the business. I appreciate your attention and look forward to just to meet you on the next call.
Thank you very much.
Operator
Ladies and gentlemen this concludes the Crown Castle International Corp. third quarter conference call.
If you would like to listen to a replay of today’s conference please 800-405-2236 or 303-590-3000 with the pass code 11-12-10-62. ACT would like to thank you for your participation and you may now disconnect.