SBA Tower Trust -- Moody's assigns definitive ratings to SBA Communications wireless tower-backed securities
Rating Action: Moody's assigns definitive ratings to SBA Communications wireless tower-backed securities
Global Credit Research - 14 Jul 2020
$1.35 billion asset backed securities rated
New York, July 14, 2020 -- Moody's Investors Service (Moody's) has assigned definitive ratings to the Series 2020-1 secured tower revenue securities, subclass 2020-1C and to the Series 2020-2 secured tower revenue securities, subclass 2020-2C (together the 2020 securities), issued by SBA Tower Trust, a New York Common Law Trust (the issuer). The collateral backing the securitizations is a mortgage loan which is made by the issuer to the borrowers. The subclasses 2020-1C and 2020-2C securities 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 10,000 tower sites located predominately in the US. The tower sites are leased to a variety of users, primarily major wireless telephony carriers. The cash flows from those tenant leases will be used to repay the mortgage loan and therefore the 2020 securities. As of 1 June 2020, the tower pool had an annualized run rate net cash flow (ARRNCF) of approximately $767.4 million.
SBA 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, is the manager of the tower sites.
The subclass 2020-1C securities amount to $750 million, and the subclass 2020-2C securities amount to $600 million. The anticipated repayment date (ARD) for the subclass 2020-1C securities is in January 2026 and the final distribution date will be in July 2050. The ARD for the subclass 2020-2C securities is in January 2028 and the final distribution date is in July 2052.
In addition, Moody's announced today that the issuance of the 2020 securities would not, in and of itself and as of this time, result in a reduction or withdrawal of the ratings currently assigned to the Series 2013-2C securities, Series 2014-2C securities, Series 2017-1C securities, Series 2018-1C securities, and Series 2019-1C securities issued by SBA Tower Trust.
The complete rating actions are as follows:
Issuer: SBA Tower Trust
Series 2020-1, Secured Tower Revenue Securities, Subclass 2020-1C, Definitive Rating Assigned A2 (sf)
Series 2020-2, Secured Tower Revenue Securities, Subclass 2020-2C, Definitive Rating Assigned A2 (sf)
The 2020 securities are issued out of a master trust, and to date, the issuer has issued fourteen series of securities, five 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 $760 million Series 2017-1C securities, with an ARD of April 2022; (4) the $640 million Series 2018-1C securities, with an ARD of March 2023, and (5) the $1.165 billion Series 2019-1C securities, with an ARD of January 2025. The 2020 securities total $1.35 billion and rank pari passu with the existing Class C securities. The issuer used the proceeds to repay the $500 million Series 2015-1C, the $700 million Series 2016-1C and to pay transaction fees and expenses.
RATINGS RATIONALE
The ratings of the 2020 securities are based on (1) Moody's assessed cumulative loan-to-value (CLTV) ratio of the 2020 securities, (2) the high quality of the underlying wireless tower pool and associated leases of which around 97% of the annualized-run-rate-revenue comes from wireless telephony/data tenants, (3) the strength of the transaction structure, including the benefit of mortgages on the tower sites securing the mortgage loans (4) the 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 stable, a2), as the servicer of the securities.
Moody's determined the CLTV ratio of the 2020 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 was approximately $8.7 Billion. See Principal Methodology for additional details on the assumptions applied to arrive at Moody's assessed value. Following the issuance of the 2020 securities, subclass 2020-1C and subclass 2020-2C securities have a CLTV ratio of approximately 58.7%. 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 rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of corporate assets from the collapse in US economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings 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 3.23% until year five, 3.0% for years 6-20, 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 and Land Mobile Radio-Specialized Mobile Radio) would decline to zero based on a triangular distribution ranging from five to ten 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 these recoveries would be zero in the year following the default, and rise to 80% for large carriers, and to 50% small carriers, of pre-default revenues over the two years after the default.
(4) Operating expenses ranging from 12% to 25% of revenue based on a triangular distribution.
(5) Management fee: The management fee is 4.5% of revenue and the successor management fee, as outlined in the transaction documents, is capped at 5.0% unless the annualized run rate revenue is less than $500 million, in which case the successor management fee is capped at 7.5%. Moody's assumed 6.0% management fee for the transaction, which is more in line with other recently rated transactions. However, in Moody's opinion the 5% successor management fee should be sufficient to attract a replacement manager.
(6) Maintenance capital expenditures: Moody's assumed that these expenditures would be $700 per tower per annum and would increase by 2% to 4% every year.
(7) A discount rate applied to the net cash flow based on a triangular distribution anchored between 8.5% and 13.0%.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
Factors 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.
Down
Factors 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) 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 DISCLOSURES
For 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_1237349.
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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At 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.
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 Karen Ramallo Senior Vice President/Manager 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
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