Diamond Communications is tapping the securitization market to fund the acquisition of more cellular towers.
It is issuing another $55 million of Series 2018-1 bonds backed by cell tower leases from its Diamond Issuer master trust; including the
Over the past 10 months, the number of sites used as collateral has increased from 490 to 579 and the number of tenant leases has increased from 674 to 832. The annualized run rate revenue (ARRR) has also increased from $19.1 million to $24.1 million and the annualized run rate net cash flow (ARRNC) has increased from $15.9 million to $19.8 million.
Approximately $41.1 million, or 74.8% of proceeds from the Series 2018-1 notes will be set aside to acquire additional cellular sites, tenant leases or real property interests underlying certain cellular sites, according to Kroll Bond Rating Agency. That’s significantly larger than the $20 million of proceeds from the December deal that were set aside to acquire future collateral. Diamond is giving itself additional time to put the new money to work; 18 months after the deal closes, compare with just 12 months for the previous deal.
While the prefunding account “introduces uncertainty as to the final composition of the pool, the Indenture includes several collateral quality tests that need to be satisfied in order for the acquired sites to be added to the collateral pool,” Kroll states in its presale report.
Three tranches of notes will be issued in the transaction: $40.7 million of Class A notes are provisionally rated A by Kroll, on par with the comparable tranche of the previous deal; $4.3 million of Class B notes are rated BBB and $10 million of Class C notes are rated BB.
Barclays Capital is the sole structuring advisor and bookrunning manager.
Among the notable risks to the deal, per Kroll, is the tenant concentration. Approximately 61.9% of ARRR is derived from AT&T Wireless and Verizon Wireless, and Kroll feels that the credit worthiness of these tenants reduces the default probability of the notes. Another 32.4% of ARRR is derived from Sprint and T-Mobile, which are not as credit worthy but are nevertheless large, publicly traded firms with national footprints. “If one or two of these tenants suffer significant degradation in their credit profile, it could negatively impact the subject portfolio’s performance,” the presale report states.
Potential consolidation among tenants with overlapping networks also poses a risk; T-Mobile (18.6% of ARRR) and Sprint (13.8%), which recently announced merger talks, are co-located at cellular generating approximately 2.2% of Sprint’s aggregate ARRR and 2.4% of T-Mobile’s ARRR.
