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Global Credit Research - 18 Aug 2010
$1.55 billion of asset-backed securities affected.
New York, August 18, 2010 -- Moody's Investors Service (Moody's) has assigned the definitive rating
of A2 (sf) to the Series 2010-4, 2010-5 and 2010-6
Senior Secured Tower Revenue Notes (the Offered Notes) to be issued by
Crown Castle Towers LLC (Issuer), an indirect wholly owned subsidiary
of Crown Castle International Corp (CCI, Ba2 corporate family rating).
Moody's also stated that its ratings on the existing Series 2010-1,
2010-2, and 2010-3 notes previously issued by the
Issuer are not being downgraded or withdrawn as a result of this issuance.
The complete rating action is as follows:
Issuer Entity: Crown Castle Towers LLC
$250,000,000 Class C-2015 Fixed Rate Senior
Secured Tower Revenue Notes, Series 2010-4, rated A2
$300,000,000 Class C-2017 Fixed Rate Senior
Secured Tower Revenue Notes, Series 2010-5, rated A2
$1,000,000,000 Class C-2020 Fixed Rate
Senior Secured Tower Revenue Notes, Series 2010-6,
rated A2 (sf)
The $1,550,000,000 Offered Notes rank pari-passu
with Series 2010-1, 2010-2 and 2010-3 notes
issued in January 2010 (the Outstanding Series 2010, and together
with the Offered Notes, the Notes). The collateral for the
Notes consists of 11,744 towers on sites that are owned, leased,
subleased or managed by twelve assets entities which are subsidiaries
of the Issuer. As of April 2010 this tower pool had an annualized
run rate net cash flow of approximately $587 million.
The issuance of the Offered Notes completes the change in the maturity
profile of the notes, that was started by the issuance of the Outstanding
Series 2010. Following the issuance of the Offered Notes,
the inability to refinance a series of notes on its respective Anticipated
Repayment Date (ARD) will result in the pay down via 'turbo' of that series
of notes, but will not trigger an early amortization of other series
of notes which are yet to reach their respective ARD. The reduced
linkage between series will enhance the stability of Issuer's capital
structure which is in turn will provide greater stability to the sponsor.
We view that as a modest credit positive for the Notes.
The ratings of the Offered Notes are derived from an assessment of the
present value of the net cash flow that the tower pool is anticipated
to generate from space licenses (leases) on the towers, compared
to the cumulative debt being issued at each rating category.
The primary risks for the value of the tower pool are wireless technology
risk and tower re-leasing risk. Technology risk relates
primarily to the potential emergence of competing technologies that could
obviate the need for wireless towers and adversely affect future lease
revenues. We are not aware of competing technologies which could
materially displace towers and believe that the tower infrastructure is
becoming increasingly entrenched as demand for wireless applications grows.
The only viable displacement technology that is on the horizon is Distributed
Antenna System (DAS), however this technology is primarily effective
in densely packed urban areas where the portfolios of the wireless tower
companies have limited presence.
Re-leasing risk refers to the potential for lease rates to fluctuate
downward upon renewal, since the transaction is subject to renewals.
This could occur due to overbuilding or due to pressure from wireless
carriers should their own businesses experience significant margin compression.
Due to zoning restrictions and public pressure we do not view overbuilding
as a present risk. This also provides some insulation against price
risk by limiting the alternatives that a wireless carrier has.
The noteholders will benefit from a pledge by the Issuer of the of the
equity interests in its subsidiary special purpose entities that own the
sites, as well as, in the case of approximately 58%
of the pool (by annualized run rate net cash flow), a UCC security
interest in the wireless towers, leases and related assets.
The absence of UCC security interests in the other 42% of the pool
is a weakness, as is the absence of mortgages on any portion of
the collateral constituting real property interests (against which type
of collateral UCC filings can be ineffective).
The principal methodology used in rating the transaction is summarized
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
subdirectory on Moody's website. 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.
The principal methodology used in rating the Crown Castle Tower LLC transaction
was "Moody's Approach to Rating Wireless Towers-Backed Securitizations:
A Path to Clear Reception in the ABS Market", published in September
2005.. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found on Moody's
As described therein, we derive an asset value for the collateral
which in turn is compared to the proposed bond issuance amounts.
In deriving the value of the assets, Moody's viewed the historical
operating performance of CCI, the historical performance of securitized
pool, evaluated and analyzed comparable public company data and
market information from various third party sources.
The following are the key assumptions used in the quantitative analysis:
(i) Revenue Growth -- for wireless voice/data two sources
of revenue growth were assumed: first, lease escalators which
were based on the tenants' contractual obligations were assumed to be
fixed at 2.6% for the first five years and 2.8%
thereafter; second, organic growth that resulted in the addition
of approximately 0.2 tenant per tower in total over a period of
six years. Revenues from broadcasting were assumed to decline on
a continuous basis over a 15 year period to a third of current levels,
and data/other revenues were assumed to decline to zero based on a triangular
distribution ranging from five to ten years. (ii) Operating Expenses
-- were assumed to vary such that net tower cash flow margins
ranged from 65% to 78% based on a triangular distribution.
(iii) Maintenance Capital Expenditures - were assumed to be $650
per tower per annum, and to increase by 2% to 4% every
year. (iv) Tenants' Probability of Default (wireless voice/data
tenants) - Moody's "Idealized" default rate table was applied,
using the actual ratings of the Tenants who were rated and assuming near-default
ratings for others; (v) Recovery Upon Wireless Tenant Default --
were assumed to be zero the year following the default and recover to
80% for large carriers and 30% to 60% for small carriers
of pre-default revenues over the next two years; (vi) Discount
Rate - the discount rate applied to the net cash flow was assumed
to vary between 10.00% and 13.00%; (vii)
Finally, adjustments were made to the total amount of debt that
can be issued down to the requested rating level based on the structure
of the transaction. In particular, all the notes are ranked
pari-passu and account for a larger percentage of the total debt
outstanding compared to most similarly rated classes in the prior transactions;
therefore the Notes, including the Offered Notes, have lower
severity of loss risk. As a result, Moody's was comfortable
with a somewhat larger individual class size than would otherwise have
been the case.
Based on Moody's assessed asset value the Notes have a loan-to-value
(LTV) ratio of approximately 63%. The LTV ratio reflects
the LTV ratio of the combined amounts of the Offered Notes and the 2010
Moody's Investors Service received and took into account one third
party due diligence report on the underlying assets in this transaction
and the due diligence report had a neutral impact on the rating.
The issuer intends to use the proceeds from the issuance of the Offered
Notes, together with a cash contribution, to fully retire
the Series 2006-1 notes and to pay related prepayment premiums,
fees and expenses. Thus, following the issuance of the Offered
Notes and the repayment of the 2006-1 notes, there will be
six series notes outstanding, the Outstanding Series 2010 comprise
of three series on notes and the Offered Notes comprise of three series
of notes. The Offered Notes will rank pari passu with the Outstanding
Series 2010. Based on that, we concluded that the ratings
of the Outstanding Series 2010 notes should not be affected by the issuance
of the Offered Notes.
V Score - The V Score for this transaction is Medium or Average.
The V Score indicates "Average" structure complexity and uncertainty about
critical assumptions. The Medium or average score for this transaction
is driven by the Medium score for historical sector and issuer performance
and data and Medium transaction governance. The Medium for historical
performance and data for the sector as whole and Crown Castle in particular
is attributed to the fact that the data dates back only fifteen years
or so, while securitization data go back only about five years.
The Medium for transaction governance is mainly due to the a weaker legal
protection to bondholders compare to other U.S. Wireless
Towers securitizations; the Offered Notes will be protected only
through UCC filing on the assets and pledge of the equity of the SPEs,
and will not benefit from mortgages on the tower sites and/or the towers.
Moody's Parameter Sensitivities -- In the ratings analysis
we use various assumptions to assess the present value of the net cash
flow that the tower 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. Specifically, if the net cash flows
that the tower 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 output
for the Offered Notes would change from A2 (sf) to Baa1, Baa3,
and Ba1, respectively.
Parameter Sensitivities are not intended to measure how the rating of
the security might migrate over time, rather they are designed to
provide a quantitative calculation of how the initial rating might change
if key input parameters used in the initial rating process differed.
The analysis assumes that the transaction has not aged. Furthermore,
parameter Sensitivities only reflects the ratings impact of each scenario
from a quantitative/model-indicated standpoint. Qualitative
factors are also taken into consideration in the ratings process,
so the actual ratings that would be assigned in each case could vary from
the information presented in the Parameter Sensitivity analysis.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer satisfactory for the purposes of maintaining a credit rating.
Additional research for this transaction is available at www.moodys.com.
The special report "Updated Report on V Scores and Parameter Sensitivities
for Structured Finance Securities" is also available on www.moodys.com.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns definitive ratings to Senior Secured Tower Revenue Notes sponsored by cell tower operator Crown Castle
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