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American Tower to issue another $500M cell tower ABS

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American Tower is marketing another $500 million of bonds tied to its wireless towers, according to rating agency presale reports.

The American Tower Trust 1 Series 2018-1A notes, which are rated triple-A by both Moody's Investors Service and Fitch Ratings, will mature in 10 years. They benefit from 1.45% credit enhancement.

Together with $26.4 million of 2018-1R unrated notes that the real estate investment trust will retain in order to comply with risk retention rules, the total amount outstanding from the master trust will be nearly $1.81 billion. (In 2013, the trust issued $1.3 billion of triple-A rated 10-year notes and $500 million of triple-A rated five-year notes. The five-year notes have since matured.)

The notes are backed by mortgages representing more than 88% of the annualized run rate (ARR) net cash flow (NCF) and guaranteed by various entities controlled by American Tower that own or lease 5,116 wireless communication sites. As of September 2017, American Tower owned and operated approximately 150,000 tower sites globally. So this transaction securitizes about 34% of AMT's tower sites, according to Moody’s. The rating agency assesses the value of the pool of towers in the trust at approximately $6.16 billion.

Among the strengths of the deal, approximately 83% of the portfolio’s annualized run rate revenue (ARRR) comes from lease contracts with the big four wireless carriers (AT&T, Sprint, T-Mobile and Verizon) and 95% of ARRR comes from telephony/data tenants. This is consistent with other recent tower ABS deals, which typically have more than 90% of ARRR from telephony/data tenants and at least 80% from the big four carriers, per Moody's.

The weighted average remaining current lease term for all tenants is 4.4 years, with a weighted average lease rate escalator of around 3.3%. The remaining current term is slightly lower than is typical for other tower pools, which tend to have a remaining current term of around five years, but the escalator is consistent with the 3.0%-4.5% range for recent transactions.

Both Moody’s and Fitch cite as a risk the fact that American Tower will not be updating its title insurance policies for changes in amount of notes outstanding when the new notes are issued. “While the initial title insurance policy is still effective, the Series 2018-1A debt amount of $500 million may not be covered by the policy and there is a potential risk of intervening liens or encumbrances on the mortgaged sites since the 2013 transaction closing date,” Moody's presale report states.

Fitch is also concerned that not all of mortgages on the cell towers securing the notes will be amended to reflect the issuance of the additional notes. For those non-amended sites, which represent 59% of the ARR NCF, the trust will only be secured with respect to the amount of the 2013 issuance.

American Tower has another $875 million of notes tied to wireless towers that were issued by another master trust in 2015. They are secured by a separate pool of towers.

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Esoteric ABS