News Analysis
ABS
New kid on the block
European data centre ABS now reality as region claims growing share of capital investment
Data centre ABS is to take the EMEA region by storm, as investment in the sector continues to climb and issuers seek out means of optimising financing and unlocking capital. Following the success of inaugural European issuance from industry giant Vantage Data Centers, further data centre securitisations are more than likely, according to research from Linklaters.
2024 marks a watershed for European investment in the digital economy. In the first five months of the year, data from Linklaters estimates US$22bn has been invested worldwide, 29% of which is in Europe.
“The demand for data centres across Europe is increasing rapidly, driven by advancements in technology such as AI and the widespread adoption of cloud services,” explains Elisabeth Johnson, partner at Linklaters office in London. “These technologies demand robust data handling and storage solutions, which only scalable data centres can provide. Many national governments have backed the development of the sector, which is one of the key drivers behind the continued resilience and levels of investment in Europe.”
Unsurprisingly, increasing investment in data centres has been seen across the globe, not just Europe, with the US still standing to be the primary investor in the space. Last year, North America accounted for 62% of the total US$36bn invested into data centres worldwide. By comparison, Europe’s share of total investment rose to 20% last year – up from just 6% the year before. When assessing the global growth of the industry and subsequent US ABS transactions since 2018, Linklaters predicts a similar trajectory of growth for the European market.
Securitisation is understood to be at the core of the next stage of growth of digital infrastructure, as demonstrated by the recent £600m Vantage Data Centers UK 2024-1 transaction (SCI – ABS Markets 30 April). The deal marked the industry giant’s 10th data centre ABS issuance worldwide, but the market was set abuzz by its first European issuance. The emergence of the asset class has been long awaited by many participants across the region.
Data centre giants in the US have been tapping ABS as a means of securing financing for some time, following substantial industry growth and investment worldwide in recent years. Linklaters has long expected to see the entry of deals like Vantage’s in Europe, having previously noted the increasing use of ABS as a means of financing data centres in the US and across the globe.
“This surge in demand is fuelling a wave of investment geared towards developing digital infrastructure capable of supporting the continent's growing data needs,” says Johnson. ”There are a variety of financing structures being used to accelerate investment into this growing sector, including asset-backed securitisations and infrastructure platform financings.”
As Europe increases its market share of overall investment into the industry, Linklaters expects this to be reflected by the region’s ABS issuance. The firm’s data and general market sentiment denote an upward trajectory for data centre ABS securitisation worldwide – both in already active issuing markets like the US, as well as in new regions like Europe.
The scope for growth in data centre ABS within EMEA, or indeed in jurisdictions beyond North America, is yet to be determined. However, securitisation is primed to be utilised for the next stage of expansion in digital infrastructure. As the demand for data centres rises, so too will the demand for financing solutions.
Claudia Lewis
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SRT Market Update
School's out?
SRT market update
It seems summer has officially arrived and with it its traditional hiatus in deal flow. Market sources suggest that activity will pick up later in Q3 and that the end of the year may see new issuers enter the market.
Reflecting on current volumes, one source explains NDAs should pick up towards the end of August and that the final quarter may see new issuers. They note: “It’s generally true that big banks issue all year round while smaller ones tend to issue later in the year. Newer banks need longer conversations with the regulators and SRT deals have a 50/50 chance of completing at the point of conception.”
In this context, it is understood that at least one non-UK European bank is prepping an SRT referencing mortgage assets.
SCI is also hearing that Barclays is looking to restaff its SRT team after an exodus of SRT professionals moved to the investor side. This follows a familiar trend of issuers moving to the buy-side, or even setting up their own business as two senior members of Nordea recently did with Revel (SCI, 29 May).
Commenting on Barclays’ reshuffle, one source notes: “SRTs are the hottest area in structured credit so investors have come in and snatched up professionals. Some specialist SRT investors have near enough doubled their employees.”
Finally, on the deal front SCI hears Standard Chartered’s subscription finance loans deal “Pontis 2024” is progressing, with the spread understood to be “in the sixes”. In terms of structure, Standard Chartered is offering two tranches to investors. This would be the bank’s second trade of the year, following Chakra 9 back in March.
Joe Quiruga
SRT Market Update
Capital Relief Trades
Agriculture CLN incoming
SRT market update
Lloyds is in market with a fresh transaction from its Fontwell programme. It previously issued the agricultural mortgages programme back in 2016 and 2020, with investors suggesting a pricing of 12% and 10% spreads, respectively. Pricing details for the new trade are still unclear, although a combination of a broader investor base and the fact that the programme has few, if any, defaults, would suggest a tighter print. Additionally, investors have insinuated that the British issuer is known to execute deals at a premium price.
One source said: “It was a lucrative deal in 2016 because there was a worry about farms following the EU exit. There were fewer investors because of this, so those who reasoned that they aren’t going to hose their farms got a good deal. And because it was UK agriculture, no US investors played.”
They add: “There would never be an issue with just one farm. It’d be a change of regulation or something that really takes the shirts off their backs.”
A second source says: “The spreads sound about right. Even though agriculture is often seen as a safe bet, there’s a lot of uncertainty in the UK with the change from European to national regulation. In general though Lloyds is a conservative bank with a good track record on agriculture loans.”
They add: “Not sure I would agree on if one farm goes down all of them do. They’re all exposed to macroeconomic factors like grain and meat prices, but you’re seeing more do more farm-to-shop and the new ELM regulation requires farmers to add more value before they can get a subsidy so they’re less exposed to this – although the regulation doesn’t quite seem to be working so we’ll see if it changes after the election.”
In other news…
ATB Financial, a bank based in the Canadian province of Alberta, has completed an SRT transaction referencing agricultural loans.
This seems to be ATBs first transaction in the space, perhaps suggesting after the majority of major Canadian banks have now issued regional are taking their first steps in the market.
Joe Quiruga
Market Moves
Structured Finance
CIRT five for 2024
Market updates and sector developments
Fannie Mae (today) executed its fifth CIRT deal of the year, designated CIRT 2024 L-3, transferring US$337.2m of mortgage risk to 27 insurers and re-insurers.
The GSE retains risk for the first 170bp of loss on the US$8.2bn pool of loans, which were acquired between July and September 2023. If this US$139.8m layer is exhausted, the insurers and reinsurers will cover the next 410bp of loss to a maximum coverage of US$337.2m.
Market Moves
Structured Finance
Job swaps weekly: Medalist names Buccola as head of structured credit
People moves and key promotions in securitisation
This week’s roundup of securitisation job swaps sees Medalist Partners appointing a former Cantor Fitzgerald senior executive as partner and head of structured credit. Elsewhere, the EIF has named a new head of securitisation, while Davis Polk has promoted six – including two securitisation specialists – to partner.
Medalist Partners has appointed James Buccola as partner and head of structured credit, as the firm continues to strengthen its structured credit and asset-based private credit investing platform. Buccola has more than two decades of investing, trading and management experience in structured credit and asset finance. He was previously head of fixed income at Cantor Fitzgerald, which he joined in December 2017, and worked at Credit Suisse and Deloitte before that.
Meanwhile, the EIF has promoted Georgi Stoev to head of securitisation. Based in Luxembourg, he was previously head of Northern Europe & CEE securitisation, having joined the fund as a structured finance analyst in March 2009.
Law firm Davis Polk has elevated David Kennedy, Aliza Slansky and four other senior team members to partner. The other lawyers to have been promoted include Brett McMahon, Zachary Frimet, Aaron Ferner and Michael Senders, who work across a range of asset classes.
Kennedy, who is based in New York, advises direct lenders, financial institutions and corporate borrowers on transactions including asset-based lending and securitisations. He also advises on leveraged buyouts, acquisition financings, private debt, debt restructuring transactions, and NAV and back-leverage facilities. Kennedy is promoted from counsel, having rejoined the firm in 2022 from Pinsent Masons. He previously had a three-year spell at Davis Polk and a one-year stint at King & Wood Mallesons.
Slansky is also based in New York and is promoted from the role of counsel in the firm’s tax practice. She focuses on derivatives and structured finance, M&A deals, capital market transactions including IPOs and joint ventures.
Beka Credit has recruited structured finance banker Pablo Perez as md, responsible for leading the creation of innovative financial vehicles to drive company growth. Perez was previously executive director and head of Iberia SPG origination and structuring at JPMorgan, which he joined in July 2007. Before that, he worked at Fitch and Banco Espirito Santo.
Maples and Calder has promoted Matthew St-Amour to partner in its Cayman Islands office. St-Amour advises borrowers and lenders on structured finance and bankruptcy remote structures, derivatives, and secured lending transactions including fund finance. He joined the firm in 2022 having previously spent 12 years at Slaughter and May.
And finally, Aon has promoted its current head of analytics for reinsurance in the Asia Pacific region, Peter Cheesman, to head of analytics for risk capital, APAC. Cheesman’s role will now also incorporate oversight of APAC commercial risk. Based in Sydney, he will report to Paul Shedden, global head of advanced risk analytics for Aon’s risk capital, and George Attard, ceo of APAC for reinsurance. Cheesman joined Aon 13 years ago, having previously spent 10 years at Guy Carpenter.
Corinne Smith, Kenny Wastell
structuredcreditinvestor.com
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