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Rating Action:

Moody's assigns definitive ratings to SBA Tower Trust wireless tower-backed securities

09 Mar 2018

$640 million of asset-backed securities rated

New York, March 09, 2018 -- Moody's Investors Service has assigned definitive ratings to the Secured Tower Revenue Securities, Subclass 2018-1C (the 2018 securities), issued by SBA Tower Trust. The 2018 securities correspond to a component of a mortgage loan that SBA Tower Trust will make to borrowers that are wholly owned by SBA Communications Corporation (SBA; B1 stable), one of the largest non-carrier operators of wireless tower assets in the United States. The anticipated repayment date (ARD) for the subclass 2018-1C securities will be in March 2023 and the final distribution date will be in March 2048.

In addition, Moody's announced today that the issuance of the 2018 securities would not, in and of itself and as of this time, result in a reduction or withdrawal of the ratings currently assigned to any outstanding series of securities issued by SBA Tower Trust.

The complete rating action is as follows:

Issuer: SBA Tower Trust

Series 2018-1, Secured Tower Revenue Securities, Subclass 2018-1C, Definitive Rating Assigned A2 (sf)

SBA Tower Trust has issued twelve series of securities so far, six of which remain outstanding: (1) the $575 million Series 2013-2C securities, with an ARD of April 2023; (2) the $920 million Series 2014-1C securities, with an ARD of October 2019; (3) the $620 million Series 2014-2C securities, with an ARD of October 2024; (4) the $500 million Series 2015-1C securities, with an ARD of October 2020; (5) the $700 million Series 2016-1C securities, with an ARD of July 2021; and (6) the $760 million Series 2017-1C securities, with an ARD of March 2023. The 2018-1C securities total $640 million and rank pari passu with the existing Class C securities. The issuer expects to use the proceeds to repay the $425 million Series 2013-1C and the $330 million Series 2013-1D and to pay transaction fees and expenses

RATINGS RATIONALE

A mortgage loan to the borrowers, that are wholly-owned indirect subsidiaries of SBA, backs the securities. As part of the issuance, the net mortgage loan decreased by $115 million. One component was added to the mortgage loan, the 2018-1C component, which corresponds to the 2018-1C securities. Following the issuance of the 2018-1 component and the repayment of the 2013-1C and 2013-1D components, the aggregate balance of the mortgage loan is $4.715 billion (excluding the risk retention components).

The borrowers own tower sites in fee, lease tower sites pursuant to long-term lease arrangements, or occupy tower sites pursuant to easement agreements. 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 2018 securities. On the closing date, the borrowers will own, lease or occupy pursuant to an easement 10,436 tower sites. As of January 2018, this tower pool had an annualized run rate net cash flow of approximately $709 million.

Moody's determined the ratings on the 2018 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, relative to the debt issues. Moody's assessed value for the tower pool was approximately $7.85 billion. Pro forma for the issuance of the 2018 securities, the subclass 2018-1C will have a cumulative loan-to-value (CLTV) ratio of approximately 60.4%. The CLTV ratio reflects the loan-to-value ratio of the combined amounts of the Class C securities. (See Principal Methodology for additional details on the assumptions applied to arrive at Moody's assessed value.)

Moody's ratings address only the credit risks associated with the transaction. The ratings do not address other non-credit risks that could significantly affect the yield to investors; among these risks are those associated with repayment on the ARD, the timing of any principal prepayments, the payment of prepayment penalties and the payment of post-ARD Additional Interest.

RATINGS OF EXISTING SERIES UNAFFECTED

Moody's announced today that the issuance of the 2018 securities would not, in and of itself and as of this time, result in a reduction or withdrawal of the ratings currently assigned to any outstanding series of securities issued by SBA Tower Trust.

As mentioned, the 2018 securities rank pari passu with the existing Class C securities and are supported by the same tower pool. As such, Moody's has determined that the issuance of the 2018 securities, in and of itself and at this time, will not result in a reduction or withdrawal of the ratings currently assigned to any outstanding series of securities issued by SBA Tower Trust. However, Moody's opinion addresses only the credit impact associated with the closing date transactions and Moody's is not expressing an opinion as to whether the closing date transactions have, or could have, other non credit-related effects that may have a detrimental impact on the interests of security holders.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was "Moody's Approach to Rating Securities Backed by Wireless Towers" published in March 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

As described therein, Moody's derives an asset value for the collateral that it compares to the proposed bond issuance amounts. In deriving the value of the assets, Moody's viewed the historical operating performance of SBA, the historical performance of the underlying tower pool, and evaluated and analyzed comparable public company data and market information from a variety of third party sources.

The following are the key assumptions Moody's used in its quantitative analysis:

a) Revenue growth: Moody's assumed two sources of revenue growth for wireless voice/data: 1) lease escalators were assumed to be fixed at 3.25% until year five, 3.0% from years 6-20 and 2.0% thereafter, and 2) organic growth resulting in a total increase in revenue of 6.0% per annum for the next four years.

Moody's assumed that revenues from broadcasting would decline continuously over a 15-year period to a third of current levels and that data/other revenues would decline to zero based on a triangular distribution ranging from five to ten years.

b) Operating expenses: Moody's assumed that operating expenses would vary such that net tower cash flow margins (not factoring in management fee and maintenance capital expenditure) would range from 75% to 87% based on a triangular distribution.

c) 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.

d) Tenant probability of default (wireless voice/data tenants): Moody's applied its "idealized" default rate table, using the actual ratings of rated tenants and assuming near-default ratings for others.

e) Recovery upon wireless 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% or 60% for small carriers, of pre-default revenues over the two years after that.

f) Discount rate: Moody's assumed that the discount rate applied to the net cash flow would vary between 8.5% and 13.0%.

g) 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 a 7.5% management fee for the transaction, which is comparable to that of other recent transactions and should be sufficient, in our opinion, to attract a replacement manager

Factors that would lead to an upgrade or downgrade of the rating:

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) the emergence of competing technologies that could obviate the need for wireless towers and adversely affect future lease revenues, (2) a decline in lease rates because of the growing bargaining power of wireless carriers and (3) significant decline in the credit quality of the tenants leasing space on the towers.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1113758

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 then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the 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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Arti Mattu
Analyst
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

No Related Data.
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