Signal Strength: Project-Financed Cell Tower Transactions Withstand 5G Slowdown

DBRS Morningstar published a commentary titled “Signal Strength: Project-Financed Cell Tower Transactions Withstand 5G Slowdown.”

Key points include:
-- Digital infrastructure and telecom tower companies (TowerCos) have quickly become an important asset class holding for private equity and other infrastructure investors, based on their essentiality and long-term cash flow stability.
-- The appeal of TowerCos is predicated in particular on the 5G rollout—the fifth generation wireless network standard that has many advantages over the previous generations and underpins the evolution of other technologies, such as the Internet of Things, enhanced mobile broadband, and fixed wireless access.
-- 5G deployment requires mobile operators to commission many more towers to improve signal coverage and network capacity, making TowerCos and tower portfolio spin-offs by telecom carriers attractive because of space sharing among multiple carriers (i.e., tower densification) and more efficient use of assets to reduce costly investments, leading investors to view these as a 5G play.

“Despite this,” said Victor Leung, Senior Vice President, Project Finance, “we note that project-financed TowerCo transactions should remain largely resilient to the recent significant slowdown in 5G investment activity.”

“This is because of important features, including historical performance against economic and technology investment cycles, asset type and revenue composition of the tower portfolios, and lender controls on capital investments,” added Jiaona Quan, Assistant Vice President, Project Finance.