Diamond Communications, a wireless communication infrastructure company in Short Hills, N.J., plans to issue a $738 million securitization of commercial mortgages on a large swath of wireless communication sites.
The proceeds will help fund a planned $1.6 billion acquisition of Melody Wireless Communication, a Greenwich, Conn.-based company that acquires, manages and leases wireless communication infrastructure.
Notes issued to investors will be secured by lease and mortgage payments on 2,358 wireless communication sites, according to FitchRatings. The pool of wireless assets underpinning Diamond Infrastructure Funding LLC, Series 2021-1 consists of three types: triple-net partnership assets governed by master agreements with wholly-owned subsidiaries of investment-grade tower companies; assets leased directly to carriers, such as rooftop towers; and ground sites, which are leased to tower companies.
The asset pool has several characteristics that are unique to the wireless infrastructure sector, such as two pools of wireless tower sites secured by ground sites, according to Fitch. Those sites are governed by long-term master agreements to investment-grade counter parties that will pay a fixed rent through late 2038.
Fitch emphasized that it’s rating opinions reflect a structured finance analysis of the cash flows from the ownership interest in cellular sites. Any potential corporate default risk for Diamond Infrastructure is not part of that assessment.
The deal does feature a diversified pool of assets, with the 2,358 wireless sites and 2,898 leases supported by 3,701 wireless carrier leases. The sites are located in 50 states, Puerto Rico and Washington, D.C., with California accounting for 13.9 percent of the pool’s annualized run rate net cash flow, or cash flow.
Among that diversified tenant pool are strong cell tower tenants. Telephone or tower operator tenants represent about 96 percent of the pool’s annualized run rate revenue, and about 62.1 percent of that revenue is from investment-grade tenants.
While Diamond Infrastructure Funding’s securitization deal has a number of strong attributes from a credit and revenue perspective, there are a couple of caveats, driven by industry fundamentals. The collateral is specialized and subject to competitive disadvantages, especially because the securities have a final payment date of more than 27 years after the deal closes. That timing could increase the risk that new technologies could render the current services obsolete and affect demand for tower space.
The class A notes received a rating of ‘Asf’; the classB notes a rating of ‘BBB-sf’ and the class C notes a rating of ‘BB-sf’, all with a stable outlook.
