NEW YORK--(BUSINESS WIRE)--Fitch Ratings is taking the following rating actions on InSite Wireless Group's InSite Issuer LLC and InSite Co-Issuer Corp. Secured Cellular Site Revenue Notes, Series 2013-1 and 2016-1:
Fitch upgrades the following classes:
--$121,829,162* 2013-1 class A to 'Asf' from 'BBBsf'; Outlook Stable;
--$39,600,000* 2013-1 class B to 'BBB-sf' from 'BB-sf'; Outlook revised to Stable from Positive.
Fitch assigns a rating and Rating Outlook to the following previously non-rated class:
--$14,000,000* 2013-1 class C 'BB-sf'; Outlook Stable.
Fitch expects to rate the following classes:
--$210,500,000 2016-1 class A 'Asf'; Outlook Stable;
--$21,000,000 2016-1 class B 'BBB-sf'; Outlook Stable;
--$70,000,000 2016-1 class C 'BB-sf'; Outlook Stable.
*Class balance as of the October remittance cut-off date.
It is expected that upon the closing of the 2016 series that the 2016-1 class A is pari passu with the 2013-1 class A; the 2016-1 class B is pari passu with the 2013-1 class B; and the 2016-1 class C is pari passu with the 2013-1 class C. The new series of securities will be issued pursuant to a supplement to the indenture.
The expected ratings are based on information provided by the issuer as of Oct. 12, 2016.
The transaction is an issuance of notes backed by mortgaged cellular sites representing approximately 80% of the annualized run rate (ARR) net cash flow (NCF) and guaranteed by the direct parent of the co-issuers. The guarantees are secured by a pledge and first-priority-perfected security interest in 100% of the equity interest of the co-issuers and their subsidiaries (which own or lease 1,196 wireless communication sites and own the rights to operate 19 distributed antennae system [DAS] networks).
KEY RATING DRIVERS
Trust Leverage: Fitch's NCF on the pool is $54.6 million (inclusive of expected cash from the site acquisition account), implying a Fitch stressed debt service coverage ratio (DSCR) of 1.23x. The debt multiple relative to Fitch's NCF is 8.7x, which equates to a debt yield of 11.4%.
Leases to Strong Tower Tenants: There are 2,800 wireless tenant leases. Telephony tenants represent 73.7% of annualized run rate revenue (ARRR), and 58% of the ARRR is from investment-grade tenants. Tenant leases on the cellular sites have average annual escalators of approximately 3% and an average final remaining term (including renewals) of 22.0 years.
Diversified Pool: There are 1,196 tower sites and 19 DAS sites spanning 46 states, Canada (145 sites), the U.S. Virgin Islands (eight sites) and Puerto Rico (52 sites). The largest state (Texas) represents approximately 11.8% of ARRR. The top 10 states (including Ontario) represent 61.9% of ARRR.
DAS Networks: The collateral pool contains 19 DAS networks representing 9.7% of the ARRR. DAS sites are located within buildings or other structures or venues for which an asset entity has rights under a lease or license to install and operate a DAS on the premises or to manage a DAS network on the premises. Fitch did not give credit for the four sites where InSite has a management contract to manage a DAS network owned by the DAS venue. These sites contribute 0.2% of ARRR. Additionally, Fitch limited proceeds from the DAS networks to the 'BBsf' category (i.e. applied a 'BBsf' rating cap), based on the uncertainty surrounding the licensing agreements in a venue-bankruptcy scenario and the limited history of these networks.
Fitch completed a break-even analysis comparing the interest-only debt service with both the Fitch stressed NCF and in-place aggregate ARR NCF, derived from data provided by the arranger, including estimated interest rates. Fitch compared the in-place aggregate ARR NCF and Fitch NCF with the interest-only debt service amount and determined that 77.2% and 76.7% reductions in NCF, respectively, would cause the 'Asf' notes to break even at 1.0x DSCR on an interest-only basis. Reductions to in-place aggregate ARR NCF and Fitch NCF of 70.4% and 69.6%, respectively, would cause the 'BBB-sf' notes to break even at 1.0x DSCR on an interest-only basis. Reductions to in-place aggregate ARR NCF and Fitch NCF of 58.8% and 57.8%, respectively, would cause the 'BB-sf' notes to break even at 1.0x DSCR on an interest-only basis.
Fitch evaluated the sensitivity of the 2013-1 and 2016-1 class A ratings and a 6% additional decline in Fitch NCF would result in a one category downgrade to 'BBBsf', while a 16% decline would result in a downgrade to below investment-grade and a 37% decline would result in a downgrade below 'CCCsf'. Rating sensitivity was also performed for the 2013-1 and 2016-1 class B notes and an additional 15% decline in Fitch NCF would result in a one category downgrade to 'BB-sf', while a 25% decline would result in a downgrade below 'CCCsf'. The Rating Sensitivity section in the presale report includes a detailed explanation of additional stresses and sensitivities.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third party due diligence was provided or reviewed in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 30, 2016.
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. 27 Jun 2016)
InSite Wireless Group, LLC (US CMBS)
InSite Wireless Group, LLC -- Appendix
Dodd-Frank Rating Information Disclosure Form
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