ExteNet preps inaugural securitisation

The first securitisation backed exclusively by distributed network systems (DNS) assets has hit the market. ExteNet Issuer Series 2019-1 is secured by around 5,800 nodes associated with 267 multi-carrier and multi-technology outdoor (95) and indoor (172) DNS networks and related licenses and equipment.

ExteNet, the sponsor of the transaction and the manager of the securitised assets, is currently the largest independent owner and operator of DNS in North America. The DNS sites are contracted to primarily wireless telephony carriers under DNS licenses (totalling 1,740), which give the carriers the right to place equipment on and/or connect to specific DNS sites. The cashflows generated through the licenses will be used to repay the securities.

As of April 2019, the DNS networks generated annualised run rate revenue (ARRR) of around US$58.6m, including ARRR that will come from contracts on DNS sites that are still under construction at transaction closing (accounting for around 7.5% of the assets). As of 30 April, the asset pool generated around 37% of its ARRR from Verizon, and roughly 96% of its ARRR from the four largest wireless carriers (AT&T, Sprint, T-Mobile and Verizon) combined. Moody’s notes that these percentages are higher than recent traditional wireless tower ABS deals, which typically have at least 80% of ARRR coming from the largest four carriers and more than 90% of ARRR coming from telephony/data lessees.

Around 16.5% (44) of the DNS networks in the ExteNet pool are located in New York, which accounts for approximately 44.4% of the ARRR net cashflow. The share of ARRNCF generated by New York is large relative to the percentage of DNS networks in the state because of the quality of the networks' location, according to Moody’s. Indeed, around 66.3% of the DNS sites are located in the top 10 states, which account for approximately 86.6% of the ARRNCF.

The initial DNS licenses have long terms, locked-in escalators and automatic renewals, which are expected to reduce the potential volatility of future cashflows. The weighted average remaining current term for all DNS licenses is around 4.7 years and the weighted average remaining final term is around 18.5 years. At the end of the current term, DNS licensees have the option to either opt out of their licenses or renew/renegotiate the license provisions.

Moody’s cites favourable wireless infrastructure industry fundamentals, strong contractual cashflows, an experienced management team, subordination of class C interest and a strong DSCR trigger as key credit strengths of the transaction. Meanwhile, key credit challenges include potentially higher churn risk for outdoor DNS sites, an unrated manager, potential changes in pool composition, ARRR subject to DNS completion risk and long-term technology risk.

Provisionally rated by Moody’s, ExteNet Issuer Series 2019-1 comprises A3 rated class A1 VFN and US$263m A2 notes, as well as US$39m Baa3 class Bs and US$66m unrated class Cs. The amount issued under the VFN will be zero at closing, but the issuer may draw up to US$75m until the VFN ARD, providing certain criteria are met.

The transaction is underwritten by Barclays and Deutsche Bank.

Corinne Smith