Cogent Communications, which owns and leases internet protocol addresses to corporate and enterprise customers, is preparing to sponsor a $164.4 million sale of securitization bonds, backed by revenue from user contracts.
The deal, known as Cogent IPv4 series 2025-1, will be a master trust and can issue additional note series later, according to Kroll Bond Rating Agency. This transaction, however, issues just one tranche of A2 notes, rated BBB. April 2030 is the notes' expected repayment date, with a legal final maturity date of April 2055.
About 13 million IP addresses, 11 million of which are leased to mostly commercial customers, make up the collateral pool, KBRA said. By the Jan. 31, 2025 cutoff date, the leased IP addresses included in the deal were associated with 13,448 contracts. Its wholesale, also called netcentric, customers are spread across 8,250 networks in four geographic regions globally—United States, Europe, Asia-Pacific and Canada, the rating agency said.
Customers are bandwidth-intensive users, like small- to medium-size businesses like law firms, financial services firms, advertising and marketing firms, education institutions and health care providers, KBRA said.
One of the deal's main credit strengths is the competitive moat around Cogent. The global supply of IPv4 addresses is limited, just 4.3 billion, according to KBRA. Less than 1% of that supply is available to brokers or IP address lessors. Cogent acquired its inventory of IPv4 addresses before the authority that holds IPv4 addresses was created, funneling a lot of business their way when brokers or lessors need IPv4 addresses.
Through a revolving master trust structure, Cogent IPv4 series 2025-1 will repay interest on a monthly schedule, with no principal paydowns until its anticipated repayment date (ARD), a cash trap or a cash sweep condition is met.
Under the cash trap, half available funds will be deposited into the cash trap reserve account if the average of the debt service coverage ratio (DSCR) for the class A notes equals 1.85x or less. If the deal falls into a cash trap condition, and it persists for more than six months, or if less than 70% of the Contributed IP Addresses are being used in that period, then half of the deal's available funds will be used to repay notes—which are all class A—in alphanumeric order.
