Vertical Bridge REIT has successfully issued $534 million of Secured Tower Revenue Notes in a private asset-backed securitization (ABS) transaction, which marks the first transaction of this type since the ABS market shut down in mid-March due to the COVID-19 pandemic.
The transaction showcases a strong and growing interest in the tower sector from the investor community and highlights Vertical Bridge’s deep relationships across the ABS market, according to Alex Gellman, CEO and cofo-under of Vertical Bridge. It also demonstrates the continuing evolution of communications infrastructure investment as several new investors choose to deploy capital in the tower sector for the first time with this securitization.
“In April we were already getting signs of life and getting indications that we could get this deal done,” Gellman said. “I think it is a comment on the communications infrastructure sector, in general, and the cell tower business model, in particular. I think it helped that we are well known in that market. We spend a lot of time building and continuing relationships.”
The revenue notes are collateralized by nearly 2,800 geographically diverse sites across 49 states and Puerto Rico and are positioned in urban, suburban, key corridor and rural markets. The securitization is the company’s fifth since its founding in 2014 as well as its largest to date.
“We have used asset-backed securities as a key funding mechanism all the way back to 2007 at GTP [Global Tower Partners],” Gellman said. “The market has improved over time as people have developed a greater understanding of towers. [ABS] is very well suited to tower assets and the tower business model. It allows us to raise money at a very good interest rate for a fixed period of time. We chose five years. In that market, you have option also to do seven or ten years.”
The transaction includes a refinancing of $321 million in commercial mortgage-backed securities from the company’s first securitization, which was completed in June 2016. It also includes the first-ever Variable Funding Note (VFN) in a wireless tower transaction, which was issued at $60 million. Once the tower portfolio grows to a certain size, it bundles the towers into a trust and issues asset-backed securities against that trust. Excess proceeds from the securitization and VFN will be used for Vertical Bridge’s continued growth, including building and acquiring new towers across the United States and its territories.
The revenue notes rank pari passu by tranche with Vertical Bridge’s $236 million securitization, which was completed in February 2018. The notes were issued in four classes: a $60 million tranche, rated A/A/A2; a $375 million tranche, rated A/A/A2; a $37 million tranche, rated BBB/BBB/NR; and a $122 million tranche, rated BB-/BB/NR. Ratings for each tranche were provided by Fitch, Kroll and Moody’s, respectively. The Class A-1 Notes have a three-year anticipated repayment with two one-year renewal options, and the Class A-2 Notes have a five-year anticipated repayment date. Both notes have a 30-year final maturity.
Barclays and Deutsche Bank served as joint bookrunning managers, and Barclays served as sole structuring advisor for the offering.