Vertical Bridge, a wireless tower operator backed by a consortium of investors including Goldman Sachs and the California State Teachers' Retirement System, is tapping the securitization market for another $185 million.

It’s the first time the company has issued notes from its master trust in two years, according to Fitch Ratings, and brings the total outstanding volume to $569.5 million. Like the previous transaction, completed in 2016, the new notes benefit from 25.375% credit enhancement and are rated A. (Fitch caps its ratings on the most wireless tower transactions at this level due to the potential for changes in technology that could affect long-term demand for tower space.)

The transaction, Vertical Bridge Secured Tower Revenue Notes, allows for the issuance of additional notes that may rank senior to, pari passu with, or subordinate to, the 2018 notes.

Barclays is the structuring agent.

The notes are collateralized by 2,551 wireless communication sites as well as a pledge of a 100% equity interest in the subsidiaries that own or lease the structures.

Of the towers, approximately 72.9% of ARRNCF is attributed to ground-leased sites, while approximately 10.8% is owned and 16.3% is easement sites. Ground leases are generally long term and have exhibited high renewal rates. Of the ground-leased sites, approximately 56.8% of the ARRNCF comes from sites that expire more than 15 years from the closing date of the securitization. Approximately 4.7% of ground-lease ARRNCF comes from ground-leased sites that have lease terms expiring within five years.

The largest tenant as a percentage of annualized run rate net cash flow (ARRNCF) is AT&T (24.1%), followed by Verizon (14%). The four largest tenants represent approximately 62% of ARRR.

This is only the second wireless tower lease securitization since Sprint and T-Mobile ended merger discussions in November 2017 that could have resulted in the combined entity not renewing redundant leases. Fitch does not expect appear to expect further consolidation. “The unlimited price wars reflect current competitive intensity, which, in Fitch’s opinion, would diminish if a potential merger were to be approved, with the majority of benefits accruing to shareholders of the new company,” the presale report states.

In the absence of any consolidation, the rating agency expects demand for wireless towers to increase as a result of growth in data traffic. “Continued capacity expansion will be necessary as carriers support business strategies that feature unlimited data offerings, increased consumption of video and, longer term, the Internet of Things,” the presale report states.

“Capacity can be added via the deployment of new spectrum, by the densification of the network, re-farming existing spectrum and by carrier aggregation. These factors drive demand on towers through amendments or additional colocation revenues as well as the construction of new towers.”

Vertical Bridge has closed on over 124 individual acquisitions since inception in 2013 and is currently the largest private tower company in the U.S., according to Fitch. As of October 2017, its entire portfolio included approximately 8,000 tower sites. The securitized pool of 2,664 towers in this securitization represents approximately 66% of Vertical Bridge’s total portfolio tower cash flow.

Proceeds from the issuance of the notes will be used to fund upfront reserves, refinance existing debt and for general corporate purposes.

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