Creative financing unlocks crucial broadband in the heartland
30/07/2020 : Even before the age of the Covid-19 pandemic, it was clear that new communications infrastructure would be crucial to the evolution of the American economy.
Much of that discussion has revolved around next-generation 5G cellular networks, but the fact is that expanding broadband fibre connectivity is just as important — while many studies show its availability remains uneven across different regions of the country.
Following the outbreak of the coronavirus, this priority has proven even more acute. Companies, consumers and families alike have rapidly pivoted to a more remote and distributed model of working, learning and living. For many, that model could be here to stay, making access to high-capacity broadband all the more important as a foundational component for economic progress rather than a ‘nice to have'. Indeed, in today's economy, connectivity is arguably just as important as a new hydroelectric dam or bridge, providing a vital link for enterprises to connect with data centers, cloud-based applications and other external infrastructure they interact with.
A tempting TMT sub-sector
This area of the TMT (technology, media and telecommunications) industry is inviting for financial institutions, and yet it remains a challenge from a financing perspective. Laying down new cable is expensive, with capital expenditure for physical construction and maintenance, buying right-of-way, and regulatory requirements — particularly in less-populous regions. More than other infrastructure types, fiber's long-term usefulness and value today must also be juxtaposed against or account for the likelihood of new emerging technologies in the future. And unlike large energy or utility projects, TMT projects are often privately executed rather than backed by public entities or debt issuance. These structural elements all add up to trickiness and risks that many lenders are unwilling to navigate.
By contrast, Societe Generale has made this TMT segment a point of emphasis, with global deals including inexio, Radiate Holdings, Summit Broadband, VodafoneZiggo, Cable & Wireless, Deutsche Glasfaser and Telenet. Stateside, one recent transaction completed in April proves great illustration as the bank supported a $342.5 million syndicated loan to midwestern fibre provider Everstream, supporting its primary investor AMP Capital, to grow the company's fibre network from its current roots in Northeast Ohio and Michigan.
The next ‘Last Mile'
The success of the broadband deal — the first of its kind for Societe Generale in the US — comes down to creativity and the contour of the opportunity. To properly augment Everstream's existing finances, two of Societe Generale's financing units, from the infrastructure team (INF) and leveraged finance (LBO), created a novel joint venture to complete the transaction — using hybrid financing that is also first of its kind in the US market. The new approach to lending helped refinance existing credit facilities, committed funding for Everstream's growth strategy, and opened a new approach to fibre financing.
Everstream and AMP are unique partners to work with in the Industrial Midwest. AMP invests across infrastructure sectors and, like Societe Generale, is now opening a new front to pursue communications infrastructure opportunities. Another pillar for Everstream's growth, the company is also teaming up with leading national wireless carriers to deliver tremendous benefits in terms of coverage and bandwidth. Everstream engineers and delivers Fibre-to-the-Tower (FttT) solutions to support both robust connectivity to traditional cell towers and new small-cell connectivity.
This so-called "last mile" of telecommunications is particularly hard to construct and maintain, and yet it is crucial for next-generation access (such as future 5G). Everstream's proven ability in FttT is both distinctive within its region and should lock in much more value to the provider.
The boldest aspect of the deal, though, lies in its ambition. Everstream's growth strategy and cap-ex program continues, despite the Covid-19 pandemic, as the Company moves into five new markets, while improving fiber density where the company already operates. Everstream aims to install more than 700 new FttT locations and will begin operating in Detroit as part of its February acquisition of local provider Rocket Fiber. In combination with that deal, Everstream projects it will be operating more than 15,000 miles of fiber connecting 3,000 network locations in twelve markets by the end of 2020. Finally, in an additional sign of Everstream's commitment, the funding of the program will be success-based, as well.
Broadband remains intriguing — and the Everstream deal should be very teachable going forward — for a range of reasons. While all of us take connectivity for granted today with our smartphones in hand, there is an obvious and unquenchable thirst for scalable broadband capacity. Outside the largest American urban areas, that need is still unmet, sometimes significantly so. The opportunity, therefore, is clear cut.
Everstream's FttT work also illustrates the different kinds of technological entry points and growth potential that lies in a regional provider with leading engineering expertise. As more and more aspects of our lives and economy are driven by the TMT sector, this infrastructure will only grow in importance and, we can fully expect, the need for creative financing partners will continue to grow with it.
Unless otherwise stated, any views or opinions expressed herein are solely those of Richard Knowlton and may differ from the views and opinions of others at, or other departments or divisions of, Societe Generale (SG) and its affiliates. No part of Richard Knowlton's compensation was, is or will be related, directly or indirectly to the specific views expressed herein.
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