Moody’s has released a rating methodology for data-center backed securitizations (Data Center ABS).
This is for multi-tenant data centers. Single tenant data centers are still rated using Moody’s commercial mortgage backed securities (CMBS) rating methodology.
Data centers have simple business models. They are similar to shopping centers and offices. The operator provides the building, connectivity (wiring, networking equipment, connection to the internet), power, cooling, and security. They then rent space to tenants – who provide their own computing equipment.
The tenant has a short or long term lease on the space that they rent from the data center operator.
In data center securitizations the assets are generally: 1) the physical data centers, and 2) the leases of the companies that rent space in the data center.
Data center securitization deals are mostly structured as master trusts – where additional funds can be raised by adding more assets over time.
Key risks:
- Re-leasing risk. Same as many commercial real estate deals – the tenant leases are shorter than the deal. So there is risk on the pricing of new leases and the credit quality of new tenants.
- Tenant defaults.
Moody’s looks at tenant concentrations, data center locations, regulatory risk, proximity to subsea cables, data center age, and operator experience.
Moody’s then models the potential effects of these risks on cashflows.
In modeling liquidation proceeds in case of default – Moody’s models the sale of the land, but gives no value to the buildings.