The consolidation of AT&T and T-Mobile USA could lead to a decline in cell tower revenues generated from site leases. This could have cash-flow implications for wireless tower ABS bonds.
AT&T said earlier this week that it entered a definitive agreement with Deutsche Telekom to acquire T- Mobile USA in a cash-and-stock transaction valued at approximately $39 billion.
AT&T will pay $25 billion in cash and up to $14 billion in AT&T stock, subject to adjustment. Deutsche Telekom will receive an approximate 8% interest in AT&T.
Barclays Capital equity analysts said that the acquisition is likely to lead to substantial network consolidation between the two companies because T-Mobile is 100% overlapped by AT&T.
The analysts, however, said they did not expect the loss of all of T-Mobile's revenue because AT&T will make use of its spectrum licenses, as well as potentially a number of T-Mobile wireless sites.
Another positive the analysts highlighted is that AT&T is expected to expand its long-term evolution coverage to 95% of the population. This expansion can lead to increased network coverage. Some of the expected tower revenue loss might also be mitigated by the long-term nature of most of the AT&T and T-Mobile tower site leases, as well as growing network demands, analysts said in the report.
"We do not expect significant revenue declines to result from the potential merger of AT&T and T-Mobile USA for most wireless tower operators/securitizers," analysts said. "Thus, most wireless tower securitizations are unlikely, in our view, to experience a material decline in trust cash flows during their remaining lives."
Barclays analysts looked at the potentially affected deals, including American Tower's AMTT 2007-1 transaction. The offering has an expected repayment date of April 2014.
Although it's likely to see some limited cash flow disruption to noteholders as a result of the mortgage, the average remaining term on long-term leases with AT&T is nine to 10 years, and is five to six years for T-Mobile. American Tower now has separate leases for tower space with AT&T and T-Mobile on the same site at approximately 3,100 locations it owns or operates.
Crown Castle International's 2010 cell tower transaction also has an expected repayment date of five, seven, and 10 years. However, Barclays analysts highlighted the possibility that the 10-year bond could experience a greater decline that would likely be offset by growth in demand for wireless services over that timeframe.
SBA Communications' SBAC 2010-1 and 2010-2 deals will potentially be most impacted by declining tower lease revenues given that the deals have an expected repayment date longer than the weighted average remaining term of the wireless tower site leases.
According to Barclays, the expected repayment dates of each bond are April 2015 and 2017, and the weighted average remaining term of the T-Mobile and AT&T leases is about three years. However, Barclays reported that both deals are unlikely to suffer declines that would set off debt-service coverage ratio triggers.