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SBA Tower Trust -- Moody's assigns (P)A2 (sf) rating to SBA Communication's wireless tower-backed securities

Rating Action: Moody's assigns (P)A2 (sf) rating to SBA Communication's wireless tower-backed securitiesGlobal Credit Research - 27 Apr 2021New York, April 27, 2021 -- Moody's Investors Service (Moody's) has assigned a provisional rating to the Series 2021-1 secured tower revenue securities, subclass 2021-1C (the 2021 securities) to be issued by SBA Tower Trust, a New York Common Law Trust (the issuer). The collateral backing the securitization will be a mortgage loan made by the issuer to the borrowers. The 2021 securities will correspond to a component of that mortgage loan. The borrowers are indirect wholly owned by the sponsor, SBA Communications Corporation (SBA; Ba3 stable). The borrowers own and operate 9,939 tower sites located in the US. The tower sites are leased to a variety of users, primarily major wireless telephony carriers. The cash flows from the tenant leases will be used to repay the mortgage loan and therefore the 2021 securities. As of 1 March 2021, the tower pool had an annualized run rate net cash flow (ARRNCF) of approximately $789.0 million.SBA, the transaction sponsor, is one of the largest non-carrier operators of wireless tower assets in the United States. SBA Network Management, Inc. (SBA Management), an indirect subsidiary of SBA, will be the manager of the tower sites.The anticipated repayment date (ARD) for the 2021 securities will be in November 2026 and the final distribution date will be in May 2051.The complete rating actions are as follows:Issuer: SBA Tower TrustSeries 2021-1, Secured Tower Revenue Securities, Subclass 2021-1C, Assigned (P)A2 (sf)The 2021 securities are issued out of a master trust, and to date, the issuer has issued 16 series of securities, six of which will remain outstanding after the closing date: (1) the $575 million Series 2013-2C securities, with an ARD of April 2023; (2) the $620 million Series 2014-2C securities, with an ARD of October 2024; (3) the $640 million Series 2018-1C securities, with an ARD of March 2023; (4) the $1.165 billion Series 2019-1C securities, with an ARD of January 2025; (5) the $750 million Series 2020-1C securities, with an ARD of January 2026, and (6) the $600 million Series 2020-2C securities, with an ARD of January 2028. The 2021 securities will rank pari passu with the existing class C securities. The issuer expects to use the proceeds to repay the $760 million Series 2017-1C securities and to pay transaction fees and expenses. Following the issuance of the 2021 securities, the total amount of outstanding term securities of the issuer rated by Moody's will be around $5.5 billion.RATINGS RATIONALEThe ratings of the 2021 securities are based on (1) Moody's assessed cumulative loan-to-value (CLTV) ratio of the 2021 securities, (2) the high quality of the underlying wireless tower pool and associated leases to wireless telephony/data tenants, which will comprise around 97% of the annualized-run-rate-revenue (ARRR) , (3) the strength of the transaction structure, including the benefit of mortgages on the tower sites securing the mortgage loans (4) the long track record, ability, experience and expertise of SBA's management team and SBA Management as the manager of the wireless towers in the securitization pool, and (5) the role of Midland Loan Services, Inc. (Midland), a division of PNC Bank, N.A (Aa2/A2 negative, a2), as the servicer of the securities.Moody's determined the cumulative loan-to-value (CLTV) ratio of the 2021 securities from an assessment of the present value of the net cash flow the tower pool will likely generate from space licenses (leases) on the towers, which it then used to calculate the CLTV ratio for each rated tranche. Moody's assessed value for the tower pool is approximately $9.2 billion. See Moody's principal methodology, "Wireless Tower Securitizations Methodology" for additional details on the assumptions Moody's applied to arrive at Moody's assessed value. Following the issuance of the 2021 securities, the subclass 2021-1C securities will have a CLTV ratio of approximately 60%. However, in assigning the ratings, Moody's factored-in additional scenarios which incorporated lower discount rates. The assessed values of the additional scenarios ranged from around $9.9 billion to $10.2 billion, resulting in CLTVs of around 54% to 56%. The CLTV ratio for a particular class of securities reflects the loan-to-value ratio of the combined original principal balance of all the securities that rank pari passu to a specific class and the combined original principal balance of all the classes that are senior to it.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of corporate assets from a gradual and unbalanced recovery in US economic activity.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.PRINCIPAL METHODOLOGYThe principal methodology used in this rating was "Wireless Tower Securitizations Methodology" published in June 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227872. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.The following are the key assumptions Moody's used in its quantitative analysis:(1) Revenue growth: Moody's assumed two sources of revenue growth for wireless telephony/data: 1) lease escalators were assumed to be fixed at 3.20% until year five, 3.10% for years 6-10, 3.0% for years 11-20, and 2.0% thereafter, and 2) organic revenue growth resulting in an incremental increase in revenue of about 1.0% - 2.0% per annum for the next five years.Moody's assumed that revenues from other sources of revenue (such as paging, Land Mobile Radio-Specialized Mobile Radio, data/other revenues) would decline to zero based on a triangular distribution ranging from five to 10 years.(2) Probability of default of wireless telephony/data tenants using the actual ratings of rated tenant or a credit estimate and assuming low speculative grade rating for unrated tenants.(3) Recovery upon wireless telephony/data tenant default: Moody's assumed recoveries would be zero in the year following the default, and then rise to 80% for large carriers and 50% for small carriers of pre-default revenues over the two years after the default.(4) Operating expenses ranging from 12% to 22% of revenue based on a triangular distribution.(5) Management fee: Moody's assumed a management fee of 5.0% of ARRR for the transaction,. Under the transaction documents, the management fee will be 4.5% of ARRR, and the successor management fee will be capped at 5.0% unless the ARRR is less than $500 million, in which case the successor management fee will be capped at 7.5%. In Moody's opinion, the 5.0% successor management fee should be sufficient to attract a replacement manager given the current ARRR of around $935 million.(6) Maintenance capital expenditures: Moody's assumed initial expenditures of $700 per tower per annum, increasing by 2% to 4% every year.(7) A discount rate applied to the net cash flow was based on a triangular distribution anchored between 8.5% and 13.0%. We ran additional scenarios with a lower discount rate based on a triangular distribution anchored between 7.5% and 12.0%.Factors that would lead to an upgrade or downgrade of the rating:UpFactors that could lead to an upgrade of the rating are (1) sustained revenue growth significantly greater than our forecast and (2) significant improvement in the credit quality of the tenants leasing space on the towers.DownFactors that could lead to a downgrade of the rating are (1) revenue growth that is materially below our initial expectations, (2) the emergence of competing technologies that could obviate the need for wireless towers and adversely affect future lease revenues and (3) a significant decline in the credit quality of the tenants leasing space on the towers. Other reasons for worse-than-expected transaction performance could include poor management of the tower pool or error on the part of transaction parties.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1278526.The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's uses a range of discount rates to calculate its assessed collateral value by averaging the simulated cash flows. As a second step, Moody's calculates the cumulative loan-to-value (CLTV) ratio for each rated instrument, where "cumulative loan" for a particular instrument refers to the aggregate size of that instrument and the more senior instruments, and "value" refers to Moody's assessed collateral value. Moody's then uses the CLTV ratio to obtain a "model-indicated" assessment for each rated instrument.Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Giyora Eiger VP - Senior Credit Officer Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Tracy Rice VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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