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SBA taking advantage of favorable cell tower outlook to refinance

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SBA Communications Corp. is readying another $640 million of bonds backed by wireless tower leases in its 13th overall wireless tower securitization through its master trust platform.

SBA Tower Trust, Series 2018-1C consists of a single-tranche of 30-year notes with provisional ratings of A2 from Moody’s Investors Service and A from Fitch Ratings. Fitch caps its ratings the single-A level due to the long-term risks that cellular sites could be eclipsed by alternative technology during the notes’ tenor.

The proceeds, along with $81.3 million contributed by SBA, will be used to repay two existing 2013 series of notes totaling $755 million, according to presale reports by Fitch and Moody’s.

The bonds are secured by a portion of a single mortgage loan that the trust will make to several wholly owned SBA subsidiaries, to be repaid from the revenue from 21,831 leases on 10,436 wireless communication sites primarily leased to AT&T, Verizon, Sprint and T-Mobile. The leases, which have an average contract balance of $458,892, have annual escalators of about 3.3% and weighted-average remaining final terms of 16.6 years, including renewals.

The new notes are being launched at a “favorable” time for the wireless tower lease sector, according to Moody’s. The four large wireless carriers (making up 94% of the leases) continue to expand network 4G capacity to support the unlimited data plans each now markets to consumers.

Meanwhile, over the next two years, the carriers will be also rolling out next-generation 5G networks that will contribute additional cash flow. (Some negative cash-flow churn will result from the ongoing decommissioning of Sprint’s iDEN, or Nextel National, network. Sprint is foregoing lease renewals on towers servicing the iDEN network in favor of investments expanded LTE coverage.)

The deal should benefit from AT&T’s increased capital spending as part of a 25-year contract it was awarded last March to build out a nationwide broadband network for emergency first responders. The work for the U.S. Department of Commerce’s First Respondent Network Authority (FirstNet) will require new equipment of between 40,000-50,000 tower sites, boosting growth and cash flow to operators such as SBA.

Moody’s estimates an annualized net cash flow run rate of $709 million, above Fitch’s estimate of $684.5 million. In its NCF analysis, Fitch notes an adjustment of $6.4 million based on the churn from the non-renewal of Sprint Corp. leases (19.9% of the lease pool) as it reconfigures LTE coverage on towers currently operating its outgoing iDEN (Nextel National) network.

Verizon leases make up 18.9% of annualized run rate revenue (ARRR), followed by T-Mobile’s 18.7%, in the 2018-1C series.

SBA owns and operates about 28,000 wireless sites globally with 50,000 tenant leases.

The 1.54% credit enhancement on the notes is unchanged from prior note issues through the trust. The master trust’s existing capital structure will total $4.79 billion after the issuance, including $73.7 million in horizontal credit-risk retention. About $33.7 million of that came in the latest issue, representing a 5% share of the fair market value of the 2018-1C note series.

Barclays is the underwriter and structuring agent on the transaction.

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Wireless tower ABS Fitch Moody's