Financing options grow for maturing US towerco market

By Andrew Ross

A combination of asset scarcity and high demand has led to an increase in the number of financing options open for US wireless infrastructure investment, say leaders from Diamond Communications, Melody Investment Partners and TowerCo, who were taking part in a recent TMT Connect Panel: 'US Wireless Infrastructure - Capturing the Next Phase of Growth in US Towers Market', hosted by Jesse Nichols of boutique investment bank Alpina Capital.

Despite rising valuations and the high barrier to entry, the pool of investors has also expanded dramatically for this asset class, and in the past year, infrastructure funds, sovereign wealth funds and pension funds have continued to make investments into the sector.

At the same time, due to the maturation of this asset class, it has become easier to securitise, the speakers commented. As a result, there's more comfort from the lenders to finance large deployments in the space. In this respect, both debt and equity availability are growing, the panel commented.

More dry powder

As infrastructure funds, pension funds and sovereign wealth funds move into the sector, they bring with them a lot of dry powder and a strong appetite to put capital to work.

"People want to finance these assets because there's just not a lot of opportunities to do so," said one speaker. "As a result, private equity money is now competing for assets with infrastructure funds, who have a lower cost of capital."

"They are recognising the quality and stability of the cash flow streams in this vertical, along with scarcity of assets and low interest rates environment," added another speaker.

While these deep-pocketed institutional buyers are also pricing some strategic buyers out of the market, they are offering co-investment and other partnership opportunities to some strategics. For example, in October, funds managed by UBS Asset Management on behalf of a large US pension plan made a strategic minority investment in Tillman Infrastructure, a developer and owner of telecommunication tower infrastructure throughout North America.

Debt financing options grow

Historically, debt providers have been cautious towards the wireless infrastructure market due to difficulties around securitising assets. Unlike other infrastructure assets, mobile towers and other wireless assets have traditionally had short visibility to an annual return date and an anticipated repayment date for bondholders, due to business model structures.

However, according to one panellist, this has changed significantly in recent years and debt financing opportunities are becoming more commonplace due to the maturation of the asset class. As a result, wireless assets are becoming easier to securitise, which is resulting in a much lower cost of debt.

He said: "There's just a greater understanding of this asset class. Whether it's a build to suit tower or an untenanted tower and everything in between, lenders are beginning to really grasp the market dynamics and move in."

"The US wireless infrastructure market is also made resilient via strong zoning protections and strong carriers who have a lot of wireless demand," added one speaker. "All those things contribute to the attractiveness of the space with a limited number of assets."

"We're seeing people pushing leverage a little bit more because of that," said another speaker. "Lenders also understand there's a lot more equity cushion behind these assets because of some of the multiples being paid."

The TMT Connect session is available to view on demand here