SBA Communications Plans $760M Cell Tower ABS

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SBA Communications, one of the largest wireless cell tower operators in the Western hemisphere, is tapping the securitization market for $760 million.

SBA Tower Trust Secured Tower Revenue Securities 2017-1 will issue seven tranches of notes rated A by Fitch Ratings and A2 by Moody's Investors Service that benefit from 7.6% credit enhancement. There is also a subordinate note rated BBB by Fitch with 0.82% credit enhancement and an unrated tranche that will be retained in order to comply with risk retention. The $40 million represent a 5% fair market value of the new 2017 notes, according to presale reports.

Proceeds from the sale will be used to pay off $610 million of notes issued in 2012, pay transaction costs and for general corporate purposes.

The notes are secured by a single mortgage that is in turn secured by mortgage liens on numerous tower cites leased to primarily from the big four U.S. wireless carriers.

The 2017-1 series bring SBA’s outstanding series of asset-backed notes to $4.87 billion. 

The collateral pool for the 2017-1C series consists of 10,453 towers with 21,967 wireless tenant leases (a nearly two-to-one ratio that SBA maintains on average in its lease portfolio). These leases are long-term agreements with major telephony and data clients, with over 97% of revenues from the U.S.’ four primary wireless carriers.

AT&T is the largest tenant SBA serves, with 36.4% of the annual revenue from the pool of towers derived from the carrier. Sprint leases are the second-largest revenue producer with 20.2% of revenues, following by Verizon (18.6%) and T-Mobile (18.4%).

The issuer estimates annual net cash flow from the new pool of towers at $676.2 million, although Fitch’s own NCF projections are slightly lower at 1.46x to produce an estimated debt-to-service-ratio of 1.46x, and equating to a debt yield of 13.5%.

SBA’s trust is permitted to issue additional pari passu securities from the 2017-C transaction.

The lease servicer is Midland Loan Services, part of PNC Bank.

Barclays is the structuring agent and underwriter.

Both Moody’s and Fitch were bullish on the prospects for continued revenue and high-demand from the carriers for the towers operated by the Boca Raton, Fla.-based SBA (NASDAQ: SBAC). All four carriers, for instance, have recently unleased new unlimited data plans, “a move which will encourage users to consume more data and require carriers to invest in their networks to boost wireless capacity,” Moody’s report stated.  Carriers are also expected to ramp up investments in new-generation 5G networks that are expected to have initial commercial deployments by 2020.

One of the risks to the revenue stream from the towers noted by Fitch was Sprint’s ongoing decommissioning of its older iDEN technology through the nonrenewal of certain expiring tenant leases on sites. Last year Fitch estimated this as a potential cash flow reduction of $4.2 million in SBA’s previous securitization; that concern has alleviated with a maximum stressed churn of only $1.5 million.

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