DBRS Morningstar Finalizes Provisional Ratings on Vertical Bridge Secured Tower Revenue Notes Series 2020-2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Vertical Bridge Secured Tower Revenue Notes, Series 2020-2 (collectively, the Notes) issued by Vertical Bridge CC, LLC (the Issuer):

-- $289,500,000, Class A Notes rated A (high) (sf)
-- $39,000,000, Class B Notes rated A (low) (sf)
-- $32,000,000, Class C Notes rated BBB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

-- Evidence of stable cash flows with modest growth since deal inception (Vertical Bridge Secured Tower Revenue Notes Series 2016-2) with consistent Annualized Run Rate Revenue and Annualized Run Rate Net Cash Flow generation over time. The debt service coverage ratio has also remained very stable over time with ample cushion against cash trapping and amortization period triggers.
-- Mission-critical nature of the assets, which are perceived as vital to the continuity of each tenant’s operations as well as to the overall daily functioning of the general economy through media, telecommunications, technology, and data transmission.
-- The largest tenants, iHeart Media, Inc. and, assuming acquisition of the To-Be Contributed Tower Sites, Cumulus Media, have demonstrated the mission-critical nature of cell towers with all of their leases affirmed, and no disruption of lease payments to Vertical Bridge REIT, LLC (Vertical Bridge), through their respective bankruptcies. Both companies have emerged with deleveraged balance sheets.
-- High barriers to entry and high historical lease renewal rates. Given significant federal, state, and local regulatory processes required to construct towers, cell tower companies offer telecommunication, radio, and TV operators the most cost-effective means to colocate on their towers as a favorable alternative to building towers of their own. This has also driven a historically high lease renewal rate of at least 98% as tenants face significant switching costs.
-- Vertical Bridge’s market position as the largest private company managing cell towers, combined with its history of portfolio growth and successful tower acquisitions, supports its long-term financial prospects.
-- DBRS Morningstar’s operational review of Vertical Bridge Management, LLC as the manager. DBRS Morningstar conducted a telephone operational review of Vertical Bridge and has deemed the company to be an acceptable owner and operator of communications infrastructure assets.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and the payment of principal by the legal final maturity date.

-- The transaction’s assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which have been regularly updated. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021. DBRS Morningstar does not believe that additional stresses are warranted in the cash flow analysis at this time. The stresses applied and certain characteristics of the underlying cell towers listed below provide ample credit protection against current coronavirus projections:
-- There has been no notable impact on Vertical Bridge Secured Tower Revenue Notes Series 2016-2 and Vertical Bridge Secured Tower Revenue Notes Series 2018-2’s transaction performance since the beginning of the pandemic in March 2020.
-- The tower sites serve as vital infrastructure whose purpose and use have only increased in importance amid the global pandemic with remote working and learning as more people spend the majority of their days at home, which drives greater mobile device usage and demand for voice and data transmission services.
-- New technology development that is unaffected by the coronavirus, such as the ongoing rollout of 5G, brings higher demand for these towers and leasing of space on these towers.

-- The structural features of the transaction, such as the cash trap mechanism and amortization period triggers, which help to accelerate the paydown of the Notes balance upon deterioration in business environment, as well as the Yield Maintenance Reserve Account, which is funded to cover interest due for the amount on deposit in the Site Acquisition Account during the Site Acquisition Period.
-- The legal structure and presence of legal opinions that will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Vertical Bridge, that the trust has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the U.S. ABS General Ratings Methodology (June 30, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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