Grain Management, a private equity firm focused on the telecommunications industry, is preparing a $196.5 million securitization of wireless spectrum lease payments, according to a presale report published by Kroll Bond Rating Agency.

Proceeds from the transaction, Grain Spectrum Funding II, will be used to purchase five licenses from Cincinnati Bell Wireless. The licenses will then be leased to Verizon Wireless over a 20-year period. The lease is a “hell-or-high-water” contract which provides extremely limited instances in which Verizon is able to rescind its obligation. The carrier must make quarterly lease payments with an annual 2% escalator throughout the life of the lease.

KBRA has assigned a preliminary ‘A-‘ rating to the notes to be issued; it has also assigned unsolicited corporate ratings to Verizon Communications, Verizon Wireless’ parent company, as it views the company’s creditworthiness as the key credit determinant of the transaction.

Verizon Wireless has an option to purchase the licenses for $185.2 44 million, which represents 104.91% of the expected outstanding principal balance of the notes as of the anticipated repayment date of Oct. 10, 2019. This put option commences four years and six months after the closing date of the securitization.

This closing is conditioned upon final approval of the leases by the Federal Communications Commission. The FCC approved the Lease on Aug. 20, and an interested party, not identified in KBRA’s presale report, has 30 days to appeal this decision and the full panel of FCC commissioners has authority to review the staff decision until 40 days after the initial decision.

The licenses are not part of the collateral package. While notholders have the rights to any sale proceeds from the licenses, the leases cannot be transferred without the consent of the FCC. This means that, in the event of a default, noteholders may face delays in the receipt of any liquidation proceeds, according to KBRA.

This transaction represents the second term securitization for Grain Management.  In 2013, it issued the first ever wireless spectrum-backed notes through Grain Spectrum Funding’s $330 million Series 2013-1 Notes. Proceeds from that deal were used to purchase three wireless spectrum licenses from Verizon, which were then leased to AT&T and to purchase one wireless spectrum license from AT&T, which was then leased to Verizon, according to information posted on its website.

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