EMEA Structured Finance Issue: Vantage Data Centers UK 2024-1
Download complete US digital infrastructure operator Vantage Data Centers brought data centre securitisation to Europe in May, proving that it can be a viable funding tool ahead of an expected boom in the coming years.
Vantage Data Centers UK 2024-1 was a £600m offering of fixed-rate, green-labelled notes that refinanced two data centres near Cardiff, Wales. Barclays was sole structuring adviser and sole green structuring adviser alongside joint lead manager SMBC Nikko.
Vantage is clearly comfortable taking a pioneering role, having also completed the first data centre securitisation in the US in 2018. Exporting the asset class to Europe was a long-term project.
“The genesis for this transaction started in 2020 when Vantage expanded to Europe and we started talking to them,” said Gordon Beck, head of corporate and sustainable securitisation EMEA at Barclays. “We then provided a financing warehouse to allow them to finish the construction of one of the two data centres within the transaction.”
The key to that financing package was the ability to prove there was an exit. “Having a capital markets takeout is absolutely critical,” Beck said.
It was not straightforward. Data centres straddle infrastructure and commercial real estate and, unlike European CMBS transactions financing offices, shopping centres and warehouses, the collateral for the Vantage deal did not take the form of a mortgage loan. The deal is instead backed by lease cashflows and the properties’ value. On top of that, the bonds pay fixed-rate rather than floating-rate interest.
This structure – especially the fixed-rate coupon – raised questions over whether it would appeal to investors in the UK and Europe. The green label, based on the assets' low energy consumption relative to other data centres, was another twist.
Since it was a first-of-its-kind deal in Europe, the main comparables were US data centre securitisations and European CMBS transactions.
The deal was well received after a smooth bookbuild and pricing landed at Gilts plus 225bp, down from guidance at 230bp, as the market seemed to appreciate the opportunity to put cash into a rare asset class.
UK and US investors took 63.5% and 36.3% of the bonds, respectively, while continental European asset managers were a tiny fraction of the investor base at just 0.3%.
The debut sets the scene for more data centre securitisations in Europe, which will be needed to support increasing demand for digital services. Global data centre capacity is expected to double in the next five years while investment is set to exceed US$2trn globally over the next five years, according to Moody’s.
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