Hotwire Funding is preparing to float $534.3 million from a pool of customer contracts related to fiber optic lines to multi-dwelling units and multi-tenant properties, such as homeowner's and condominium associations, apartments, student housing, hotels, individual residents and municipalities.
The deal is the second from Hotwire Communications' master trust, which has $1.58 billion currently outstanding, according to Kroll Bond Rating Agency, which expects to assign ratings to the notes. As of May 10, 2023, Hotwire Funding provided internet and cable services through 675 networks, which have an aggregate annualized run rate revenue (ARRR) of about $271.8 million, and annualized run rate net operating income (ARRNOI) of about $177.4 million.
Notes issued from Hotwire Funding are secured by a perfected security interest in fiber network assets, permits and contract collateral, KBRA said.
Since the previous issuance from the master trust—the Hotwire 2021-1—came to market, Hotwire Communications and the deal have both seen a number of changes. The number of Hotwire Communications sites has increased from 515 to 675 by the May 2023 cutoff date KBRA said. A couple of key performance metrics saw changes, with the ARRR, increasing to $271.9 million, from $214.1 million, while ARRNOI was $177.5 million, up from $127.5 million. Further, the pool appears to be slightly more diversified, KBRA said.
The deal's ARRR among its top five customers proportion of ARRR accounted for 8.2% of the
The deal's top five customers accounted for 8.2% of ARRR by its cutoff date, down from the 9.6% concentration in Hotwire 2021-1 under similar circumstances, KBRA said.
Households are signing up for fiber connections in ever-greater numbers, reflecting subscriber demand for high-quality internet services, data transfer speeds and bandwidth, which is helping to drive solid fundamentals for the industry, KBRA says. A reason for the move to more data-intensive applications is a cultural shift to hybrid- and work-from-home environments.
Combined with demand, the customer contracts deliver cash flows to the trust consistently and on an escalating basis, KBRA said. Customers—the homeowner and condo associations and multi-dwelling units—pay a fixed fee, usually monthly to Hotwire Funding.
Yet the deal has a few potential credit drawbacks, relating to the security interests in Hotwire's permits and contract collateral. The note holders will not have a perfected lien on any real property interests associated with the fiber network assets, so the trustee will not be able to foreclose directly on the assets or any underlying rights agreements, KBRA said. Instead foreclosure, if necessary, will fall on the issuer's equity interests.
KBRA expects to assign 'A' to the $416.3 million, A-2 notes; 'BBB' to the class B notes and 'BB-' to the class C notes. All of the notes are fixed rate, and have an anticipated final maturity date of May 2053, KBRA said.
