CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns ratings and Rating Outlooks for VB-S1 Issuer, LLC's Secured Tower Revenue Notes, Series 2016-1 as follows:
--$240,000,000 series 2016-1 class C 'Asf'; Outlook Stable;
--$29,000,000 series 2016-1 class D 'BBBsf'; Outlook Stable;
--$52,000,000 series 2016-1 class F 'BB-sf'; Outlook Stable.
The transaction is an issuance of notes backed by mortgages representing approximately 90.2% of the annualized run rate net cash flow (ARRNCF) and guaranteed by the direct parent of the borrower. This guarantee is secured by a pledge and first-priority-perfected security interest in 100% of the equity interest of the issuer (a direct subsidiary of which owns or leases 1,529 wireless communication sites). The notes will be issued pursuant to an indenture dated as of the expected closing of the series 2016-1 transaction.
The ratings reflect a structured finance analysis of the cash flows from the ownership interest in cellular sites, not an assessment of the corporate default risk of the ultimate parent, Vertical Bridge.
KEY RATING DRIVERS
Trust Leverage: Fitch's net cash flow (NCF) on the pool is $36.5 million, implying a Fitch stressed debt service coverage ratio (DSCR) of 1.23x. The debt multiple relative to Fitch's NCF is 8.8x, which equates to a debt yield of 11.4%.
Leases to Strong Tower Tenants: There are 2,378 wireless tenant leases. Telephony/Data tenants represent approximately 86% of the annualized run rate revenue (ARRR), and 47.4% of the ARRR is from investment-grade tenants. The tenant leases have weighted average annual escalators of approximately 3% and a weighted average final remaining term (including renewals) of 25.1 years. The largest tenant, AT&T (31.4% of ARRR) is rated investment grade by Fitch (long-term IDR of 'A-' with a Stable Outlook).
No Term Securitization History: This is the first term securitization completed by Vertical Bridge. VB's management team consists of the former team that managed Global Tower Partners (GTP) and from 2007-2013, GTP issued $2 billion of securitization notes. Additionally, the 2016-1 notes are structured with a more conservative cash trap trigger (1.60x) and early-amortization DSCR trigger (1.40x) than comparable transactions.
Fitch performed several stress scenarios in which Fitch's NCF was stressed. Fitch determined that a 63% reduction in Fitch's NCF would cause the notes to break even at 1.0x DSCR on an interest-only basis.
Fitch evaluated the sensitivity of the ratings for series 2016-1 class C, and an 8% decline in NCF would result in a one-category downgrade, while a 17% decline would result in a downgrade to below investment grade. The Rating Sensitivity section in the presale report includes a detailed explanation of additional stresses and sensitivities.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report. The presale report is available to all investors on Fitch's web site 'www.fitchratings.com'
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Additional information is available at www.fitchratings.com.
Criteria for Analyzing U.S. Wireless Tower Transactions (pub. 19 Nov 2015)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Vertical Bridge Secured Tower Revenue Notes, Series 2016-1 -- Appendix
Dodd-Frank Rating Information Disclosure Form