Vertical Bridge, a privately owned real estate investment trust that operaterates radio broadcast towers, is tapping the securitization market with bonds backed by approximately one third of its annual leasing revenue.
The deal, Secured Tower Revenue Notes, Series 2016-2, will issue two tranches of fixed-rate securities: $174.2 million of fixed-rate, class A bonds have a preliminary ‘BBB+’ rating from Kroll Bond Rating Agency; $21.8 million of class B bonds are rated ‘BBB-’. Both tranches have an anticipated repayment date of October 2021 and a final maturity of October 2046.
The class A notes repay 5% of their principal a year; the class B notes pay only interest, and no principal, until October 2021. Any remaining balance on the notes after that date will be paid off through cash-flow sweeps.
Guggenheim Securities in the structuring advisor and sole bookrunner on the transaction.
The notes are backed by 407 communications broadcast towers tied to 829 tenant leases; 377 of the towers were acquired in a sale-leaseback transaction with iHeartMedia, Inc. (formerly known as Clear Channel Communications), the radio broadcast station ownership giant and its largest client, in December 2014.
Nearly 63% of the transaction’s annualized run rate revenue are from iHeartMedia. In its presale report, KBRA cited this concentration as a key credit consideration. "iHeartMedia, Inc. has struggled in recent years as it operates in an extremely competitive landscape and depends on client advertising revenues that are increasingly being diverted away from traditional media formats such as radio broadcasting business," the report states.
The towers are also leased by smaller broadcast operators, such as Cherry Creek Radio.
The towers are located in 45 states and Washington, D.C., with the largest run-rate revenue exposure to sites in Florida (11.8% of the pool) and California (11.1%)
A portion of the notes sale proceeds will pay down existing debt for Vertical Bridge, as well for general corporate purposes and a distribution to Vertical Bridge REIT.
This is Vertical Bridge's second trip to the securitization market. In June, it issued $321 milllion of five-year notes. The firm, which was founded in 2013 by former executives of Global Tower Partners, has raised $1 billion in equity and $900 million in debt, including the prior securitization.