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Deal sizes grow larger, with US$8bn in public data centre ABS during Q1
Public data centre ABS issuance is already heading to record-breaking levels this year, with Q1 figures alone hitting around US$8bn. Full-year projections are set to reach US$37bn, which would be over double 2025's US$18bn. This growth was a key theme of last week’s SCI webinar, 'Financing options, growth prospects and pitfalls of the US data centre market'.
While deal flows are surging, with larger transaction sizes becoming a key trend across the market, regulatory concerns remain, with pushback highlighting power availability. North Dakota and West Texas, among other remote areas of the US, are now being analysed as potential build-out spots, given the easy access to the grid and the ability to build on-site generation, with many investors seeking to work directly with utility companies to help scale the infrastructure necessary for the projects.
Although concerns have been raised, operators are arguing back, highlighting that data centres may create jobs and lower local power rates, positively impacting the surrounding areas.
Financing structures are also seeing broader expansion, with high-yield structures becoming increasingly popular as they offer more execution security on a mega-scale build.
As issuers look to capitalise on the expected growth this year, new and creative solutions will be needed. High yield is now one option serving that need, particularly with the larger developments that otherwise wouldn't be filled in the existing development warehouse into ABS structure.
The evolution of the market in this area is driven by the growth in technology, financing needs outside the US, and investors now looking to allocate across the world in local currencies.
The digital infrastructure sector, among other esoteric ABS asset classes, will be explored in greater depth at SCI's Esoteric ABS Forum in New York on 6 May. For further information or to register, click here.
For the full discussion, you can access the webinar recording here.