Fitch Ratings has assigned the following rating and Rating Outlook to AP
WIP Holdings, LLC notes maturing 2019:
--$115,000,000 notes maturing 2019 'BBBsf'; Outlook Stable.
The ratings are based on information provided by the issuer as of Aug.
The $115 million AP WIP Holdings, LLC loan maturing 2019 is backed by
630 wireless sites with 860 wireless tenant leases. Of the $115 million,
$90 million is advanced at closing with an additional $25 million
available to purchase eligible additional assets. The transaction is an
issuance of notes backed by mortgages representing approximately 96% of
the annualized net cash flow, a first priority perfected security
interest in the personal property associated with the mortgaged sites,
and a perfected security interest in the personal property and fixtures
of the asset entities of the non-mortgaged sites. The transaction is
structured as interest-only through the anticipated repayment date in
The ownership interest in the wireless sites consists of lease purchase
sites, easements and fee interests in land, rooftops or other structures
on which site space is allocated for placement of tower and wireless
KEY RATING DRIVERS
Cash flow and leverage: Fitch's net cash flow (NCF) on the pool is
approximately $14.9 million (including prefunding), which is
approximately 4.4% below the issuer's NCF, implying a Fitch stressed
debt service coverage ratio (DSCR) of 1.37x including all potential
future prefunding. Gross potential rents were determined on a
tenant-by-tenant basis per Fitch's 'Criteria for Analyzing U.S. Wireless
Tower Transactions'. The debt multiple relative to Fitch's NCF for the
loan is 7.69x, which equates to a debt yield of 13%.
Leases to Strong Tower Tenants: There are 860 wireless tenant leases.
Telephony tenants represent 99.5% of the leases on the cellular sites.
AT&T (rated 'A', Outlook Negative by Fitch) and Verizon (rated 'A-') are
the largest tenants, representing approximately 21% each of the total
issuer cash flow. The tenant leases have average annual escalators of
Reasonable Diversification: There are 630 sites spanning 50 states. The
largest state (California) represents approximately 21.6% of issuer cash
Loan secured by mortgages and first-priority security interests: The
loan is secured by: perfected first mortgage liens on the interests of
the asset entities in fee assets, ground leased assets, and other sites
representing approximately 96.9% of the NCF from all such assets; and
the equity interests of the issuers and each asset entity, as well as
various transaction accounts and agreements. The security interests in
the equity of the issuers and the asset entities provide noteholders
with the ability to foreclose on the ownership of the issuers and the
asset entities in addition to their assets pledged as collateral in the
event of default.
Importance of Towers to Wireless Service Providers: Increased smartphone
penetration and data usage have increased the need for cell towers. With
wireless service providers (WSPs) moving to 4G networks, there is a need
for additional towers, since 4G has a smaller range per WSP. The
emergence of tablets and other devices adds additional demands for
higher speeds and network build-outs.
Risk of Technological Obsolescence: The notes have a rated final payment
date 25 years after closing, and the long-term tenor of the notes
increass the risk that an alternative technology - rendering obsolete
the current transmission of wireless signals through cellular sites -
will be developed. Currently, WSPs depend on towers to transmit their
signals and continue to invest in this technology.
Additional Notes: It is expected that the transaction will allow for the
issuance of additional notes. Such additional notes may rank pari passu
with or subordinate to the 2014 notes. The additional notes will be pari
passu with and be rated the same as any class of notes bearing the same
alphabetical class designation. Additional notes may be issued without
the benefit of additional collateral, provided the post-issuance DSCR is
not less than 2.0x. As Fitch monitors the transaction, the possibility
of upgrades may be limited due to the provision that allows additional
notes and cash flow deterioration.
Prefunding: It is expected that on the closing date, approximately 22%
of the total rated proceeds can be used by AP to acquire additional
cellular sites during the 12-month acquisition period via further
advances as allowed under the loan agreement. Prefunding introduces
uncertainty as to final collateral characteristics. Fitch accounted for
prefunding by stressing the NCF of the prefunding component to reflect
the most conservative prefunding pool composition tests. Fitch also
performed an originator review including a site inspection to gain
comfort with AP's origination practices. Additionally, the calculation
agent, Deutsche Bank Trust Company Americas, will be performing certain
recalculation of prefunding requirements outlined in the documents.
Structural Features: The transaction features an upfront reserve account
with an initial balance of approximately $2.6 million. The reserve
account thereafter has a minimum balance of $2.6 million, or six months
interest payments, and is replenished. The transaction also features
mandatory prepayments if the advances are greater than 7.75x the
eligible free cash flow. This allows for the prepayment of the loan if
sites become ineligible due to condemnation, concentration or missed
payments (among other criteria). Site eligibility is outlined in the
transaction documents. The calculation agent monitors the structural
triggers on a monthly basis.
Fitch performed several stress scenarios in which Fitch's NCF was
stressed. Fitch determined that a 26.9% reduction in Fitch's NCF would
cause the notes to break even at 1.0x DSCR on an interest-only basis.
Fitch evaluated the sensitivity of the ratings and an 11.9% decline in
NCF would result in a one-category downgrade to 'BBsf', while a 30.6%
decline would result in a downgrade below 'CCCsf'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria'(May 24, 2013);
--'Criteria for Analyzing U.S. Wireless Tower Transactions' (Dec. 3,
Applicable Criteria and Related Research: AP WIP Holdings, LLC maturing
Global Structured Finance Rating Criteria - Effective from 20 May 2014
to 4 August 2014
Criteria for Analyzing U.S. Wireless Tower Transactions
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
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CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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