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Investing.com -- S&P Global Ratings has upgraded its issue-level rating on SBA Communications Corp (NASDAQ:SBAC).'s senior unsecured debt to 'BB+' from 'BB' on April 7, 2025. Additionally, the recovery rating has been revised to '4' from '5'. The '4' recovery rating signifies an anticipated average recovery of 30%-50% (estimated at 40%) in the event of a payment default.
The 'BBB-' issue-level rating on the company's senior secured debt remains unchanged, as it's capped at one notch above the issuer credit rating. The '1' recovery rating on the senior secured debt also remains unchanged, indicating an expected very high recovery of 90%-100% (estimated at 95%) in the event of a payment default.
The rating on SBA (LON:SBA)'s senior unsecured debt was raised to reflect updated information about the inclusion of unencumbered domestic and international tower sites. This inclusion has increased the default valuation of the company, which could be available ratably to both its secured and unsecured lenders in a hypothetical default scenario. However, the towers pledged to SBA Holdings, which holds the wireless tower-backed securities, are not included.
S&P Global Ratings simulated a default scenario, assuming a hypothetical default occurring in 2030 due to speculative capital spending for expansion, increased competition due to technological advancements, economic pressure leading to increased customer churn, and contract renegotiations at lower prices. This decline in SBA's operating results would lead to a payment default when its liquidity and cash flow become insufficient to cover its cash interest expense, mandatory debt amortization, and maintenance-level capital expenditure requirements.
At default, the recovery analysis assumes a capital structure comprising a $2 billion secured revolving credit facility maturing in 2029 (85% drawn), a $2.3 billion term loan maturing in 2031, and $3 billion of senior unsecured debt. The company has been valued on a going-concern basis using a discrete asset valuation of its tower assets, resulting in an estimated going-concern net emergence valuation of $5.3 billion.
S&P Global Ratings believes that if SBA were to default, its existing towers would continue to have a viable business model due to the ongoing demand for space on towers, driven by the rising demand for mobile data, video, and other applications. As a result, creditors would achieve the greatest recovery value through a reorganization and a sale of the company as a going concern rather than a liquidation.
The company's tower assets have been valued to arrive at an estimated going-concern gross enterprise valuation of $5.6 billion. The U.S. towers are valued at $360,000 per tower, incorporating a discount of 20% to the average of selected market transactions. The foreign tower portfolio is valued at $125,000 per tower, also incorporating a discount of 20% to the average of selected transactions.
After accounting for 5% administrative costs, the net emergence value (EV) is $5.4 billion. The estimated net EV available for senior secured debt is $4.3 billion, with the senior secured debt claims being $4.0 billion, thus resulting in a senior secured debt recovery rating of '1' (90%-100%; rounded estimate: 95%).
The estimated value available for senior unsecured debt is $1.3 billion, with the senior unsecured debt and deficiency claims being $3.1 billion, resulting in a senior unsecured debt recovery rating of '4' (30%-50%; rounded estimate: 40%).
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