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Rating Action:

Moody's upgrades SBA Communications' CFR to Ba3; outlook stable

29 Oct 2019

Approximately $6.3 billion in rated securities affected

New York, October 29, 2019 -- Moody's Investors Service (Moody's) upgraded all ratings of SBA Communications Corporation (SBAC) and its operating subsidiary, SBA Senior Finance II, LLC, by one notch, including SBAC's corporate family rating (CFR) to Ba3 from B1. Concurrently, Moody's assigned SGL-1 speculative grade liquidity rating to SBAC, indicating very strong liquidity. The rating outlook is stable.

The following ratings were upgraded:

Issuer: SBA Communications Corporation

Corporate Family Rating, upgraded to Ba3 from B1;

Senior Unsecured Debt Rating, upgraded to B1 from B2;

Issuer: SBA Senior Finance II, LLC

... Senior Secured Bank Credit Facility, upgraded to Ba3 from B1

The following rating was assigned:

Issuer: SBA Communications Corporation

... Speculative Grade Liquidity Rating, assigned SGL-1

Outlook action

Issuer: SBA Communications Corporation

Outlook remains stable

Issuer: SBA Senior Finance II, LLC

Outlook remains stable

The rating upgrade reflects SBAC's improved credit profile supported by lower leverage levels and robust operating performance, which Moody's expects to continue in the next 12-18 months. SBAC reduced its Net Debt/EBITDA to approximately 7.8x for LTM Q3 2019 from 8.5x for fiscal 2017, while operating with effective leverage of approximately 80% (all metrics calculated using Moody's accounting adjustments), meeting the thresholds that Moody's had previously indicated would result in positive rating momentum. The rating action incorporates Moody's view that SBAC's cash flows will continue to benefit from visible revenue growth from a significant backlog of contractual rents as well as robust and growing wireless carrier demand for tower lease space.

As the third largest US tower operator with significant international business, SBAC is well positioned to benefit from the current upgrade cycle and lease amendments as carriers continue to install new cell site equipment, expand coverage, densify their 4G/LTE wireless networks, and 5G-related activity in the US as well as strong organic revenue growth trends in SBAC's international markets. This should lead to SBAC's continued EBITDA expansion and adjusted leverage maintained under 8x range in the next 12-18 months, even as the REIT continues to invest in growth, funds its share repurchase program, and grows its dividends that commenced in September 2019.

The SGL-1 liquidity rating reflects Moody's view that SBAC will have very good liquidity in the next 12-18 months, characterized by solid operating cash flow, high cash balances, and access to its largely undrawn $1.25 billion revolver due 2023. SBAC had full availability on its revolver as of September 30, 2019. Given Moody's projection for solid EBITDA performance, strong internally generated cash flows, modest maintenance capital expenditures, healthy cash levels (at least $100 million) and over $1 billion available under its committed revolver at all times, SBAC has more than sufficient liquidity to meet the upcoming debt maturities over the next 18 months ($500 million in tower revenue notes and $24 million in term loan amortization), maintenance capex and to fund share repurchases and dividends. Moody's expects that SBAC will size its share repurchases and any incremental share buyback authorizations within the REIT's free cash flow generating capacity without impairing liquidity. As of July 29, 2019, the REIT has authorization for a $1 billion share repurchase program. Moody's expectation that SBAC will have ample cushion under its maintenance covenants also supports the SGL-1 liquidity rating.

RATINGS RATIONALE

SBAC's Ba3 Corporate Family Rating reflects the REIT's significant tenant concentration, its financial policy which includes a meaningful share of secured debt in its capital structure and high financial leverage, with Moody's adjusted net debt to EBITDA of 7.8x and effective leverage (debt plus preferred as a percentage of gross assets) of 80% as of June 30, 2019. The Ba3 rating also considers SBAC's high profitability business with stable, contractual cash flows and good liquidity. SBAC's substantial scale as the third largest wireless tower operator in the U.S., good geographic diversification with a footprint across 14 countries bodes well for the REIT's favorable tower industry fundamentals. The REIT's credit profile benefits from the stability of much of its revenue base and cash flow generation, which is derived predominantly from its contractual relationships with the largest wireless operators in the U.S. and the high barriers to entry for wireless towers. The Ba3 rating embeds the risk of lower lease demand as a result of technology network shifts or the emergence of substitute technologies in the longer (7 years or more) term. These risks are counterbalanced over the near-term by the solid contracts with embedded annual escalators in the range of 3-4% per annum that SBA has with the largest wireless carriers.

A social impact that we consider in SBAC's credit profile includes rapidly increasing wireless data consumption, which benefits SBAC. Moody's believes that strong growth in mobile data traffic will continue to support the strength of wireless tower sector fundamentals over the next several years.

The stable outlook reflects Moody's expectations that SBAC will remain disciplined in managing its future growth and shareholder returns.

Ratings will be upgraded if SBAC continues to demonstrate EBITDA expansion and allocates a significant portion of free cash flows towards deleveraging and unencumbering its asset base such that Moody's adjusted net debt to EBITDA is sustained below 7.5x and effective leverage (debt plus preferred over gross assets) approaches 75%.

Ratings could be downgraded if a more aggressive financial policy, including large debt-financed acquisitions or share repurchases, or lower-than-expected cash flow growth result in tight liquidity and deterioration in credit metrics, such that Moody's adjusted net debt to EBITDA is sustained above 8x.

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Boca Raton, Florida, SBA Communications Corporation (NASDAQ: SBAC) is the third largest independent operator of wireless tower assets in the U.S. with 16,371 sites as of June 30, 2019. In addition, SBAC owns and operates 13,474 wireless towers in South America, Central America, South Africa and Canada as of June 30, 2019.

REGULATORY DISCLOSURES

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.

Dilara Sukhov, CFA
AVP - Analyst
Corporate 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

Philip Kibel
Associate Managing Director
Corporate 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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