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A Project Finance Approach to TowerCos: Rating Independent Wireless Infrastructure Providers

Wireless infrastructure providers, more commonly known as tower companies, can be either captive entities that are majority owned by Mobile Network Operators (MNOs) or they can be independent pureplay entities (TowerCos) that focus on managing, maintaining, and building passive telecom infrastructure (towers) to host multiple tenants. TowerCos can take the form of corporations or special purpose vehicles (SPVs) formed exclusively to own and operate telecom tower (and rooftop) sites. TowerCos have seen continued growth in recent years, as MNOs see the many benefits of outsourcing and sharing passive wireless infrastructure. This commentary focuses on the risks and credit considerations in the rating of TowerCo entities.

If debt is raised in an SPV to acquire tower assets, its characteristics would likely be consistent with typical project financings, and the Rating Project Finance methodology is generally suitable to rate the debt and the TowerCo entity as issuer. TowerCos that are corporate entities rather than SPVs may still be ratable under the Rating Project Finance methodology if their business model shares most of the key aspects of project financings that makes them less risky than typical corporate credits. Looking at TowerCos through the project finance lens, the key credit considerations are the stability and predictability of the revenue stream and operating/maintenance capital costs. Other important considerations include counterparty risk, the terms and lengths of lease agreements/contracts, tenancy ratios, asset location and quality, and ground leases. Additional credit considerations include refinancing risk and the regulatory environment in which the TowerCo is operating.