DBRS Morningstar Assigns New Ratings to Vertical Bridge Secured Tower Revenue Notes Series 2018-2

DBRS, Inc. (DBRS Morningstar) assigned new ratings to the following notes issued by Vertical Bridge Secured Tower Revenue Notes Series 2018-2 (the Issuer):

-- $29,971,750 Class A Notes at A (high) (sf)
-- $10,100,000 Class B Notes at A (low) (sf)
-- $31,800,000 Class C Notes at BBB (sf)

These notes are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings on these notes Under Review – Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on January 9, 2020. In accordance with MCR’s engagement letter covering these notes, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

As stated in its December 19, 2019, press release, “DBRS and Morningstar Credit Ratings Confirm U.S. ABS Cell Tower Asset Class Coverage,” DBRS Morningstar applied MCR’s “U.S. ABS General Ratings Methodology” to assign these new ratings.

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

(1) DBRS Morningstar reviewed the rating analysis performed by MCR on the transaction on or prior to the closing date.
(a) The analysis considered the legal structure of the transaction, the credit quality of Vertical Bridge CC, LLC and its business position in the industry.
(b) The rating analysis also included an evaluation of the transaction cash flow using an analytical tool. MCR based its assumptions on the assets’ historical performance and built stress scenarios to estimate the breakeven annualized tower cash flow multiple required to pay off each class of notes in full, per the priority of payments under the different scenarios. These breakeven multiples were calculated under various stress scenarios where different timing and magnitude for various variables in the model were used, such as lease revenue disruption caused by tenant defaults, recovery percentage, lease escalator rate, lease-up rate, and expenses. The projected results of the Class A, B and C Notes demonstrated the Issuer’s ability to pay timely interest and ultimate principal by the legal final maturity at the assigned rating levels.

(2) DBRS Morningstar notes that a legal analysis, which included but was not limited to legal opinions and various transaction documents, was performed by MCR and engaged external counsel as part of its process of assigning new ratings to the transaction on or prior to the closing date. For the purpose of assigning new ratings to the transaction, DBRS Morningstar did not perform additional legal analysis unless otherwise indicated in this press release.

(3) DBRS Morningstar relied on MCR’s operational risk assessments performed when assigning ratings to this transaction on or prior to the closing date and did not perform additional operational risk assessments.

(4) DBRS Morningstar reviewed key transaction performance indicators reported in periodic remittance reports since the closing date.

COLLATERAL
This transaction is secured by specific wireless tower sites and cash flow generated from the tenant leases. The cash flow for the securitization comes from current and future tenant leases from the towers.

CASH FLOW ANALYSIS
The key assumptions in the cash flow analysis include lease revenue disruption caused by tenant defaults, recovery percentage, lease escalator rate, lease-up rate, and expenses.

STRESS SCENARIO
DBRS Morningstar considered eight stress scenarios derived for the initial rating that tested the Class A, Class B, and Class C Notes and examined sensitivities to the stress scenarios. The stresses applied to factors such as tenant concentration, tenant credit profiles, basic trading-area concentration, tower and technology types, and manager experience and compared results across different scenarios. The Class A, Class B, and Class C Notes all have an anticipated repayment date in five years (November 2023).

As part of the analytical integration process, the corresponding MCR ratings that were placed Under Review – Analytical Integration Review will be discontinued and withdrawn. As such, these new ratings are deemed to be solicited DBRS Morningstar ratings.

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

The principal methodology is MCR’s U.S. ABS General Ratings Methodology, which can be found on dbrs.com under Methodologies & Criteria.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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