Research: Rating Action: Moody’s assigns definitive rating to American Tower’s wireless tower-backed securities

New York, March 13, 2023 — Moody’s Investors Service (Moody’s) has assigned a definitive rating of Aaa (sf) to series 2023-1 secured tower revenue securities, subclass 2023-1A (the 2023 securities) issued by American Tower Trust I, a New York Common Law Trust (the issuer). The collateral backing the securitization is a mortgage loan made by the issuer to the borrowers. The 2023 securities correspond to a component of that mortgage loan. The borrowers are indirect wholly owned subsidiaries of the sponsor, American Tower Corporation (AMT, Baa3 stable). The borrowers own and operate 5,036 tower sites located in the US. The tower sites are leased to a variety of users, primarily major wireless telephony/data carriers. The cash flows from the tenant leases will be used to repay the mortgage loan and therefore the 2023 securities. As of 31 October 2022, the tower pool had an annualized run rate net cash flow (ARRNCF) of approximately $600 million. The issuance amount for the 2023 securities of $1.3 billion is higher than the amount for which we assigned provisional rating on 6 March 2023, but the credit considerations for the transaction have not impacted the rating. For the provisional rating, Moody’s used the issuance amount that was provided by the issuer.

AMT is one of the largest non-carrier operators of wireless tower assets in the US and around the world. SpectraSite Communications, LLC (SpectraSite), a Delaware limited liability company and an indirect subsidiary of AMT, is the manager of the tower sites.

The anticipated repayment date (ARD) for the series 2023-1, will be in March 2028 and the legal final maturity date will be in March 2053.

The complete rating action is as follows:

Issuer: American Tower Trust I

Series 2023-1 Secured Tower Revenue Securities, Subclass 2023-1A, Definitive Rating Assigned Aaa (sf)

The 2023 securities were issued out of an existing master trust, and to date, the issuer has issued three series of securities, one of which remained outstanding after the series 2023 closing date, the $500 million series 2018-1A securities with and ARD of March 2028. The issuer is expected to use the proceeds of the issuance to repay the $1.3 billion 2013-2A component of the mortgage loan, including accrued and unpaid interest, to make a cash distribution to the transaction’s guarantor, American Tower Holding Sub, LLC, for general corporate purposes and to pay transaction’s fees and expenses. Following the issuance of the 2023 securities, around $1.8 billion of sub-class A term securities of the issuer rated by Moody’s are outstanding.

RATINGS RATIONALE

The rating of the 2023 securities is based on (1) Moody’s assessed cumulative loan-to-value (CLTV) ratio of the 2023 securities, (2) the high quality of the underlying wireless tower pool and associated leases, of which around 95% of the annualized-run-rate-revenue (ARRR) comes from leases to wireless telephony/data tenants, (3) the strength of the transaction’s legal structure, including the benefit of mortgages on the tower sites accounting to 88% of the ARRR securing the mortgage loans (4) the long track record, ability, experience and expertise of AMT’s management team and SpectraSite as the manager of the wireless towers in the securitization pool, and (5) the role of Midland Loan Services, a Division of PNC Bank, National Association (Aa3/A2 stable, a2), as the servicer of the mortgage loan.

Moody’s determined the CLTV ratio of the 2023 securities from an assessment of the present value of the net cash flow the tower pool will likely generate from leases on the towers, which Moody’s then used to calculate the CLTV ratio for each rated tranche. In deriving the value, Moody’s considered the strong and stable historical net revenue growth of the assets in the trust for more than 15 years, including during the pandemic. Moody’s modeled value was around $7.9 billion, resulting in a CLTV ratio of around 22.8%. The assumptions Moody’s applied to arrive at the value are listed below. The CLTV ratio reflects the loan-to-value ratio of the combined amounts of the class A securities.

The rating of the 2023 securities also reflects the expiration of the existing title insurance policies upon closing and the sponsor’s expectation that new title insurance policies will be obtained by the issuer within a year after closing. The issuer’s lender’s title insurance policies terminated upon the repayment of the 2013-2A component of the mortgage loan in connection with the issuance of the series 2023-1. As a result, as of the closing date, the issuer did not have the benefit of any lender’s title insurance policies on the mortgaged sites as well as any updated title searches that are associated with new title insurance policies. However, the transaction documents requires the borrowers to obtain new title insurance policies with respect to the mortgaged sites within 365 days after the closing date. The lack of title insurance policies for the short period could result in a potential risk of intervening liens or encumbrances on the mortgaged sites because the last title search was conducted in 2013. If this risk were to materialize, the amount secured by the sites’ mortgages could be reduced. However, this risk is mitigated because AMT, currently an investment grade rated company, has covenanted not to put new liens on the sites and provided a representation that there are no current intervening liens on the sites. As a result, prior to the execution of the new title insurance policies, the rating of the 2023 securities are partially linked to the ratings of AMT. In addition, potential title defects associated with tower sites will have a negligible effect on the credit quality of the 2023 securities owing to the granularity of the underlying pool and the low probability of such tower defects given the sites have been part of the trust for more than 10 years, the very low initial CLTV on the 2023 securities and a structural feature that allocates excess cash flows to pay down a portion of the 2023 securities upon the occurrence of cash flow disruption due to a title defect.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was “Wireless Tower Securitizations Methodology” published in June 2020 and available at https://ratings.moodys.com/api/rmc-documents/67646. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

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

(1) Revenue growth: Moody’s assumed two sources of revenue growth for wireless telephony/data: 1) lease escalators were assumed to be fixed at around 3.2% until year 15, 3.0% for years 16-20, and 2.0% thereafter, and 2) organic revenue growth resulting in an incremental increase in revenue of about -1.0% to 2.0% per annum for the first five years.

Moody’s assumed other sources of revenue, such as paging, land mobile radio-specialized mobile radio, data/other revenues, would decline to zero based on a triangular distribution ranging from five to 10 years.

(2) Probability of default of wireless telephony/data tenants using the actual ratings of rated tenants or a credit estimate where available or assuming a probability of default consistent with a low speculative grade rating for unrated tenants.

(3) Recovery upon wireless telephony/data tenant default: Moody’s assumed recoveries would be zero in the year following the default, and then rise to 80% for large carriers and 50% for small carriers of pre-default revenues over the two years after the default.

(4) Operating expenses ranging between 14% and 22% of revenue.

(5) Management fee: Moody’s assumed a management fee of 5.0% of ARRR for the transaction. Under the transaction documents, the management fee is equal to 4.5% of ARRR, and the successor management fee is capped at 7.5% of ARRR. Moody’s expects the 5.0% successor management fee to be sufficient to attract a replacement manager given the current ARRR of around $750 million.

(6) Maintenance capital expenditures: Moody’s assumed initial expenditures of $700 per tower per annum, increasing by 2% to 4% every year.

(7) A discount rate applied to the net cash flow was based on a triangular distribution anchored between 7.5% and 12.0%.

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

Down

Factors that could lead to a downgrade of the rating are (1) revenue growth that is materially below our initial expectations, (2) the emergence of competing technologies that could obviate the need for wireless towers and adversely affect future lease revenues and (3) a significant decline in the credit quality of the tenants leasing space on the towers. Other reasons for worse-than-expected transaction performance could include poor management of the tower pool or error on the part of transaction parties.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on https://ratings.moodys.com/documents/PBS_1360738.

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 uses a range of discount rates to calculate its assessed collateral value by averaging the simulated cash flows. As a second step, Moody’s calculates the cumulative loan-to-value (CLTV) ratio for each rated instrument, where “cumulative loan” for a particular instrument refers to the aggregate size of that instrument and the more senior instruments, and “value” refers to Moody’s assessed collateral value. Moody’s then uses the CLTV ratio to obtain a “model-indicated” assessment for each 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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

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

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Giyora Eiger
VP – Senior Credit Officer
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

Daniela Jayesuria
Associate Managing Director
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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