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Adams Outdoors readies $505M cash-out refi of billboard business

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Adams Outdoor Advertising is preparing a cash-out refinancing of a whole business securitization it completed four years ago.

The new transaction consists of $505 million of notes backed by 9,789 billboards, permits, licenses, contracts, ground leases, real property, insurance proceeds, structures and any amounts generated from liquidated assets, according to rating agency presale reports. Proceeds will be used to repay $445 million of notes issued in a 2014 transaction, pay transaction fees and fund certain accounts and for general corporate purposes, which could include a dividend to the issuer’s indirect parent. Adams Outdoor is controlled by founder Stephen Adams.

The refinancing comes six months after Adams said it was in talks about a possible merger with Fairway Outdoor Advertising, which it jointly owns with private equity firm GTCR. In an interview with Bloomberg News in May, Kevin Gleason, CEO of both companies, said they were also exploring conversion to a real estate investment trust structure.

Adams’ refinancing of its whole business debt may suggest that plans for a merger and REIT transformation have been abandoned.

Like Adams, Fairway is currently structured so that the majority of its assets are securitized in a whole businesses transaction. It first issued $257 million in 2012, followed by $44 million in 2015; both deals were rated by Fitch.

Adams' assets have not increased substantially since its 2014 transaction, however these assets are generating additional income. Eligible net revenue for the latest deal has increased to $124.89 million from $115.14 million for the 2014 transaction; eligible net cash flow has increased to $66.76 million from $60.36 million, according to Kroll Bond Rating Agency.

Both Kroll and Fitch cite Adams’ dominant position in the 12 midsize markets in which it operates as a strength of the deal. Kroll notes that this allows advertisers to “saturate” a given market. Moreover, competition in these markets is limited because approximately 84.5% of Adams’ billboards have the status of being legal and nonconforming. This means that no other billboard from a competitor would be able to go up in its place and no future permits would be issued for that site if a structure owned by Adams were to come down or be removed.

Fitch expects modest growth in 2017 and 2018 as outdoor takes share from other local advertising experiencing secular pressure. In its resale report, it notes that two competitors, Lamar and OUTFRONT, converted to REITs in 2014. "While REIT conversion did not result in a material change in credit profiles, additional leverage to fund additional distribution could weigh on credit profiles,” the presale report states.

Three tranches of notes will be issued in the Adams transaction: $395.8 million of Class A notes are provisionally rated single-A by both Kroll and Fitch; $35 million of Class B notes are rated triple B; and $74.2 million of Class C notes are rated double B. Credit enhancement for each class consists primarily of subordination; the classes B and C provide 21.6% enhancement for Class A notes, and the Class C notes provide 14.7% enhancement for the Class B notes.

All of the notes have an expected repayment rate of November 2025; however, only the Class A notes will amortize, by 23%, over that period. None of the principal for the Class B and Class C notes will be repaid until maturity.

Deutsche Bank Securities is the sole structuring agent and joint book-running manager; BMO Capital Markets is a joint book-running manager.

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Whole business securitization Esoteric ABS