SBA Communications is tapping the securitization market for $700 million, according to rating agency reports.
The wireless cell tower operator will issue a single tranche of securities from its SBA Tower master trust, which is ultimately backed by 10,544 wireless tower sites (or 41% of SBA’s total tower sites) and 22,425 leases tenant leases.
The series 2016-1C notes are rated A2 by Moody’s Investors Service and A by Fitch Ratings.
Barclays Capital is the structuring agent and underwriter. Midland Loan Services is the servicer.
This is the eleventh securitization sponsored by SBA, and it will increase the total amount of tower revenue securities outstanding by $150 million; the bulk of proceeds will be used to repay the $550 million outstanding series 2010-2C notes.
The collateral in this transaction is a mortgage that the securitization trust has made to various subsidiaries of SBA; the mortgage is secured by tower sites and tenant cash flows.
Both Moody’s and Fitch cite as a major strength of the deal the fact that approximately 93% of the portfolio’s annualized run rate revenue (ARRR) comes from lease contracts with the big four wireless carriers (AT&T, Sprint, T-Mobile and Verizon) and that 97% of ARRR comes from telephony/data tenants. This is consistent with other recent tower ABS deals, which typically have more than 90% of ARRR from telephony tenants and at least 90% from the big four carriers.
The primary risk to the deal, according to both rating agencies, is the operational: SBA’s network managemen subsidiary manages the tower sites. If it were to go bankrupt, the administration of the tenant leases could be disrupted.
Fitch’s presale report also cites as a risk the fact that Sprint has been decommissioning iDEN technology through the nonrenewal of certain tenant leases on sites. So the remaining iDEN leases in the pool are scheduled to churn on their current term expiration. Fitch calculated the churn to be approximately a $4.2 million reduction in cash flow, in a “stressed” scenario.
Leases from T-Mobile and MetroPCS could also experience churn as if overlapping sites are decommissioned after they merge.