$355 million of asset-backed securities affected
New York, December 10, 2010 -- Moody's Investors Service (Moody's) has assigned definitive ratings to
the $355 million of Secured Billboard Revenue Notes (Notes) issued
by Adams Outdoor Advertising Limited Partnership (Issuer), an indirect
wholly owned subsidiary of AOA Management Company Limited Partnership
(Adams Outdoor or Adams). The Notes are collateralized primarily
by 10,172 billboard faces and associated assets and rights.
The Class A Notes partially amortize over a seven year period while the
other classes of notes are interest only for seven years. At the
payment date in December 2017 (the Anticipated Repayment Date or ARD),
if the Notes have not been repaid in full then available cash flow going
forward will be applied to repay each class in full, in alphabetic
order. The legal final maturity for the Notes is December 2040.
The complete rating action is as follows:
Issuer: Adams Outdoor Advertising Limited Partnership
$253,750,000 Class A Fixed Rate Secured Billboard Revenue
Notes, Series 2010-1, rated A2 (sf)
$44,000,000 Class B Fixed Rate Secured Billboard Revenue
Notes, Series 2010-1, rated Ba2 (sf)
$57,250,000 Class C Fixed Rate Secured Billboard Revenue
Notes, Series 2010-1, rated B3 (sf)
RATINGS RATIONALE
The ratings of the Notes are derived from an assessment of the present
value of the net cash flow that the collateral pool is anticipated to
generate, compared to the cumulative debt being issued at each rating
category. The collateral for the Notes consist primarily of 10,172
billboards which are associated with 4,928 outdoor advertising structures
and related permits, licenses, ground leases, and parcels
of real estate on which the structures are located. As of September
30, 2010, the billboard portfolio generated over $98,000,000
in trailing twelve month revenue with an operating margin of approximately
61%.
The primary risks for the collateral are overall economic conditions which
correlate with spending by advertisers, and the competitiveness
of billboards as an advertising medium against alternative advertising
mediums. The Issuer focuses its operations on providing outdoor
advertising services to advertisers in non-major markets.
The Issuer's billboards are located across 12 markets spanning 11 states
and 133 counties in the Midwest, Southeast and Mid-Atlantic
States. The three largest markets by percentage of the Issuer's
total revenue are Charlotte, NC (~22.3%), Lehigh
Valley, PA (~11.9%) and Charleston, SC (~10.9%).
In each of the 12 markets, the Issuer is a leading, if not
dominant, provider of billboard advertising services with an average
82% market share based on face count. In addition,significant
federal, state and local regulations limit construction of new billboards,
limiting prospective competition. Finally, we would like
to note that while this pool is not nationally diversified we view it
as fairly fully diversified given the number of billboards and the diverse
geographic footprint of the assets.
Moody's assessed asset value for the portfolio is approximately $404
million. Based on Moody's assessed asset value, the Class
A notes have an LTV ratio of approximately 62.7%,
the Class B notes have an LTV ratio of approximately 73.6%
and the Class C notes have an LTV ratio of approximately 87.8%.
While the Issuer is incented to refinance the Notes at or prior to the
ARD, our ratings do not assume or place any likelihood on such event;
instead our ratings address repayment by the legal final maturity.
Similarly our ratings do not address any Post-ARD additional interest
which may accrue if the Notes are not fully repaid at or prior to the
ARD.
The principal methodology used in rating the Notes is described below.
Other methodologies and factors that may have been considered in the process
of rating the Notes can be found on www.moodys.com in the
Rating Methodologies sub-directory. In addition, Moody's
publishes a weekly summary of structured finance credit, ratings
and methodologies, available to all registered users of our website,
at www.moodys.com/SFQuickCheck.
Moody's Investors Service received and took into account a third party
due diligence report on the underlying assets or financial instruments
in this transaction and the due diligence report had a neutral impact
on the rating.
Finally, it should be noted that Moody's ratings address only the
credit risks associated with the transaction. Other non-credit
risks, such as those associated with repayment on the anticipated
repayment date, the timing of any principal prepayments, the
payment of prepayment penalties and the payment of Post-ARD additional
interest have not been addressed and may have a significant effect on
yield to investors.
MOODY'S V-SCORE AND PARAMETER SENSITIVITIES
Moody's V Score. The V Score for this transaction is Medium/High.
The V Score indicates below "Average" structure complexity and uncertainty
about critical assumptions. The Medium/High score for this transaction
is driven by a variety of factors. This is the first billboard-backed
securitization rated by Moody's. As such we have neither historical
performance variability nor historical downgrade rates. Nevertheless,
the issuer provided in depth historical data which included more than
fifteen years of revenue performance drivers for each of the Issuer's
twelve markets, and almost ten years of expens break down.
In addition, the issuer has disclosed many relevant characteristics
for the securitized pool. Additionally, noteholders are protected
only through UCC filing on the assets and pledge of the equity of the
SPEs, and do not benefit from mortgages on the real property assets.
The absence of mortgages is a weakness. Finally, The servicer
of the notes will be Midland Loan Services, Inc., wholly
owned subsidiary of PNC Bank, National Association (A2).
While Midland is highly experienced with servicing securitizations,
it has very limited experience with servicing billboard-backed
transactions.
Moody's Parameter Sensitivities. In the ratings analysis we use
various assumptions to assess the present value of the net cash flow that
the billboard pool is anticipated to generate. Based on these cash
flows, the quality of the collateral and the transaction's structure,
the total amount of debt that can be issued at a given rating level is
determined. Hence, a material change in the assessed net
present value could result in a change in the ratings. Therefore
we focus on the sensitivity to this variable in the parameter sensitivity
analysis. For the Class A notes, if the net cash flows that
the billboard pool is anticipated to generate is reduced by 5%,
10% and 15% compared to the net cash flows used in determining
the initial rating, the potential model-indicated ratings
would change from A2 (sf) to A3, Baa1, and Baa2, respectively.
For the Class B notes, if the net cash flows that the billboard
pool is anticipated to generate is reduced by 5%, 10%
and 15% compared to the net cash flows used in determining the
initial rating, the potential model-indicated ratings would
change from Ba2 (sf) to Ba3, B1, and B2, respectively.
For the Class C notes, if the net cash flows that the billboard
pool is anticipated to generate is reduced by 5%, 10%
and 15% compared to the net cash flows used in determining the
initial rating, the potential model-indicated ratings would
change from B3 (sf) to <B3, <B3, and <B3, respectively.
PRINCIPAL RATINGS METHODOLOGY
The principal methodology used in rating this transaction is described
below. Other methodologies and factors that may have been considered
in the process of rating this issue can also be found in the Rating Methodologies
sub-directory on Moody's website.
In broad terms, we first assign a value to the assets (Moody's value)
and then determine the amount of debt that can be issued against those
assets at a given rating level with reference to a loan-to-value
(LTV) (see below). In doing so, we factor in adjustments
based on the results of our qualitative assessment of the transaction
characteristics, from strength of legal structure to operational
risk to security repayment terms. Moody's asset value is calculated
by first simulating an annual net cash flow based on projections for revenue
minus the sum of operating expenses, management fees, and
maintenance capital expenses. We also simulate two stresses,
one in which the Manager defaults and one that accounts for industry down-cycles.
The asset value is the discounted value of 30 years of annual cash flow
plus a terminal value.
In detail, Moody's develops its analysis as follows. Moody's
assesses the historical operating performance of the Issuer and evaluates
and analyzes comparable public company data and market information from
various third party sources. Emphasis is placed on analyzing expense
components as well as future revenue growth potential for the sector in
general and for the Issuer in particular. To calculate the value
of the entire portfolio, we conducted a scenario based cash flow
simulation analysis using the portfolio's annualized data as of June 30,
2010 and historical financials. We simulated the revenue for eleven
markets (we treated Ann Arbor and Lansing as one market). For each
market we simulated the revenue for each type of billboard (i.e.
posters, bulletin and digital) and added those to generate the total
revenue for each market. We then added all those revenues to come
up with the overall revenue for the pool each year. In our simulation,
we assumed that the price per face for each type of billboard is constant
at the current price, which itself represents a stress level in
comparison to where prices were in 2007 and 2008. We also assumed
that the number of faces for each type of billboard remains constant at
current levels. Historically, the fluctuation in the number
of faces has been relatively small. The utilization rate assumptions
provide the variability in our revenue model; we used a triangular
distribution based on the calculated average, maximum and minimum
utilization rate produced in each market for each type of billboard over
a period of up to seventeen years. For instance, for Charlotte,
NC posters we used a minimum utilization rate per year of 60%,
an average utilization rate of 69%, and a maximum utilization
rate of 78%. In addition, assuming that long-term
growth in revenue should generally track GDP growth, we assumed
that revenues escalate according to a triangular distribution with a minimum
increase per year of 1.5%, an average increase of
2.5%, and a maximum increase of 3.5%.
Analysis was also done on the potential impact on revenues should the
Manager default or if a recession were to occur. We simulated the
default of the Manager based on its credit worthiness. In the event
of a Manager default, we assume that revenue will decline to 60%
of pre-default levels in the year following the default,
recover to 80% of pre-default levels in the second year
following the default, and revert to 100% of pre-default
levels in the third year following the Manager default. The assumption
stems from our expectation that at the time of a Manager default there
are advertising contracts in place and that a replacement manager will
eventually be found and be able to utilize the assets in the same efficiency
as the initial Manager. To account for the possibility of an economic
downturn we simulate down-cycle scenarios. We assume a 20%
probability of occurrence and when a down cycle occurs, we haircut
the revenue by 20%. Historically, on static asset
pools, the outdoor advertising sector has experienced a decline
in revenue every five years on average, with the magnitude of such
decline in those years ranging between 5% and 25%.
On the expense side of the asset value calculation, we separately
incorporated operating expenses, management fees, and maintenance
capital expenses. The historical operating expenses for the portfolio
were relatively stable (based on dollar amount). However,
in our analysis we incorporated higher levels and higher volatility,
which were generally consistent with the current and historical performance
of other outdoor advertising companies. Based on that we assumed
operating expenses as percentage of revenue to vary at a triangular distribution
of (42%, 45%, 50%). Historically,
maintenance capital expenses were relatively stable (based on a dollar
amount) and accounted for very small portion of the revenue. Based
on that, we assumed maintenance capital expenses as a percentage
of the revenue to vary at a triangular distribution centering around 1.3%.
Finally, for management fee we used the contractual obligation of
the Issuer: the higher of 5% of revenue or $6.1
million per annum. In conjunction to the revenue and expense stresses,
we applied a series of different discount rates based on the riskiness
of the future cash flow stream. Discount rates used varied between
10% and 13%.
Based on the above assumptions, Moody's assessed asset value for
the portfolio is approximately $404 million. From this number
ratings can be determined at varying Loan-to-Values (LTVs)
based on the following levels: for Aaa ratings LTV ranges between
30% and 41%, for Aa2 ratings LTV ranges between 39%
and 49%, for A2 ratings LTV ranges between 48% and
57%, for Baa2 ratings LTV ranges between 57% and 63%
, for Ba2 ratings LTV ranges between 71% and 75%,
and for Ba3 and below ratings LTV is =76% The above LTV
ranges are based on a "typical" transaction structure. The advanced
levels may be adjusted upward or downward based on the specific characteristics
of a transaction.
Based on the foregoing, and given the structure of the proposed
transaction, adjustments were made to the total amount of debt that
can be issued at the requested rating levels as a result of certain transaction
features. In particular, the Class A benefits from scheduled
principal amortization totaling $56 million prior to the ARD;
such amortization will reduce Class A's LTV over such period of time.
The scheduled payments to the Class A Notes also benefit, indirectly,
the Class B and Class C Notes by reducing the overall debt associated
with the pool of assets. Additionally, the Class A Notes
account for a much larger percentage of the total debt outstanding compared
to the "typical" assumed transaction at its ratings level. Therefore
the Class A has lower severity of loss risk compared to the "typical"
assumed transaction. The Class B and Class C are also somewhat
larger than the "typical" assumed subordinated class and also have somewhat
lower severity of loss compared to the "typical" assumed subordinated
tranches. As a result, Moody's was comfortable with somewhat
higher LTVs than would otherwise have been the case.
REGULATORY DISCLOSURES
Information sources used to prepare the credit Rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information. Moody's Investors Service considers the
quality of information available on the issuer or obligation satisfactory
for the purposes of assigning a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Giyora Eiger
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns definitive ratings to Adams Outdoor sponsored billboard assets securitization
