A notable bond deal earlier this month not solely offered tons of of tens of millions of euros to Vantage Knowledge Facilities but in addition created a brand new asset class for traders throughout Europe and a blueprint for related corporations to observe. Denver-based Vantage raised 720 million euros ($820 million) via the continent’s first euro-denominated bond deal backed by its German knowledge middle belongings, together with an choice to faucet a further 80 million euros. The asset-backed securitization (ABS) association adopted the same £600 million deal ($840 million) within the U.Okay. final yr. Each transactions, engineered by funding bankers at Barclays, do greater than bankroll the corporate’s progress. The offers, put collectively by legislation companies Clifford Likelihood and Hogan Lovells, have enabled European traders to achieve direct publicity to the expansion in cloud computing and synthetic intelligence for the primary time. Asset-backed securitization In an ABS, an organization borrows cash by issuing bonds towards a pool of anticipated earnings from underlying belongings as collateral. For knowledge facilities, the “belongings” embrace the bodily infrastructure — massive amenities, cooling programs and energy grids — together with long-term lease agreements with tenants, who within the case of Vantage have been massive cloud suppliers often known as “hyperscalers.” The steady money flows that knowledge facilities sometimes generate are extremely engaging to bond traders and permit operators like Vantage Knowledge Facilities to safe cheaper, fixed-rate financing to repay dearer development loans. The financial institution loans are then recycled as investments into new tasks. For Vantage, this mannequin is central to its progress technique. “The ABS, or securitization market, is the North Star from a financing perspective for this asset class,” mentioned Sharif Metwalli, Vantage’s chief monetary officer. “We’re replicating the success we have had in North America in [Europe], and the plan is to do the identical in different areas.” Conventional financial institution financing would possibly face limitations given the dimensions and tempo of present growth. The worldwide knowledge middle market was valued at $195 billion in 2022 by actual property specialists CBRE. Consultants at McKinsey undertaking that this may develop at a compounded annual progress fee of about 20% till 2030. The timeline for these forecasts can be being accelerated by the three way partnership between Oracle , OpenAI, and Japan’s Softbank, which introduced a $500 billion funding over the subsequent 4 years to construct knowledge facilities to host AI supercomputers often known as “Stargate.” Given the backdrop, Vantage, via its British pound and euro-denominated offers, not solely lowered its value of borrowing but in addition successfully created a brand new asset class for institutional traders to achieve publicity to this fast progress. “I feel it takes a participant akin to Vantage, who’re acquainted with the advantages of information facilities, in addition to public ABS issuances from the US, to be a pioneer for the market in Europe and introduce that kind of financing,” mentioned Michael Nartey, who leads the structuring workforce at Barclays Funding Financial institution, which was behind each offers. The sheer progress, he famous, meant the trade “cannot proceed to simply be financed by the non-public markets.” Deal particulars Though Vantage has raised billions in the USA over a few years, entry into Europe wasn’t with out its share of hurdles. The dearth of comparable transactions in Europe meant the corporate and its funding banks, which additionally included Deutsche Financial institution on the German deal, needed to undertake appreciable investor training. The primary U.Okay. transaction, which concluded in June 2024, took over 9 months to execute, largely due to the extreme “investor training course of” required. “Numerous traders have been very eager to know the asset class, however did not have a lot background on how, and even what, a knowledge centre was,” Nartey informed CNBC. Nevertheless, by the point of the German deal, traders reportedly started asking the “pertinent and extra essential questions” relatively than simply the basic “education-based questions,” indicating elevated familiarity with the asset class. Apart from the necessity to persuade traders, issues from ranking businesses needed to be resolved forward of any bond issuance. Emma Matebalavu, a companion at legislation agency Clifford Likelihood that represented Vantage, defined that, in contrast to a typical European real-estate bond deal, Vantage’s ABS construction required the bond-issuing entity itself to personal the data-center properties. That required intricate authorized work to ring-fence the belongings inside an current enterprise. Dietmar Helms, a companion at Hogan Lovells who suggested Barclays, famous that for the German deal, a “bespoke” resolution was wanted to satisfy German actual property legal guidelines and tax guidelines whereas satisfying ranking businesses that traders won’t be confronted with a sudden tax cost and dent their returns. “Each time that you simply promote a property, like a chunk of land with a constructing, normally you pay a sure proportion of the worth to the tax workplace,” Helms defined. “A deal like this must be structured in a approach that minimises the relating dangers to provide traders sufficient consolation on the robustness of the construction, as a result of in any other case, the deal would simply not make sense from an financial perspective.” ‘First-mover premium’ This early transfer in Europe additionally got here with a “first-mover premium” — the next fee demanded by traders, given the dearth of precedent. “The explanation for this slight premium on spreads versus different comparable North American ABS transactions is de facto pushed solely by relative liquidity out there and basic investor training,” mentioned Wealthy Cosgray, senior vp of world capital markets at Vantage Knowledge Facilities. Nevertheless, the corporate mentioned extra favorable phrases have been achieved — a drop of about 15 foundation factors above benchmark charges — in its second transaction in Germany, indicating that traders have gotten extra snug with one of these bond. “I might argue that knowledge middle issuance has develop into much less of an ‘esoteric’ asset class within the US, given what number of issuers are actually accessing the market,” Cosgray added. “We’re nonetheless early in [Europe, the Middle East and Africa], however the liquidity is rising.” What’s in it for traders? Beneath the ABS construction, the creditworthiness of the tenants is paramount, because the bond’s coupon funds are reliant on them. The 4 Vantage amenities within the German deal are absolutely leased to a few hyper-scale corporations, all rated AA- or increased, with the biggest holding a coveted AAA ranking, based on a word from Scope Rankings. The 2 latest European offers additionally borrow concepts from their earlier U.S. transactions. As an example, the “smooth bullet” model, whereby bonds are repaid inside 5 years although they mature many years later, is a characteristic of offers on each side of the Atlantic. That meant that Vantage was in a position to appeal to its conventional U.S. investor base to its European problem. Vantage mentioned the most recent transaction additionally helped it broaden its European investor base. “We noticed much more European devoted insurance coverage capital, fund managers, ABS consumers, come into this deal,” Cosgray mentioned. “The liquidity that we’re increasing on this market is actual securitization depth for European traders.” The construction of the German deal additionally developed from the U.Okay. deal by providing traders two tranches of debt: a senior Class A word rated A- and a smaller, subordinated Class B word rated BBB-. Each notes are thought of funding grade by Scope. “I do not assume traders view the credit score danger for the B notes relative to A notes as vital however they’re getting a greater coupon,” mentioned Metwalli, Vantage’s CFO. He highlighted that traders acquired a 65-basis-point pickup in yield for what might be perceived as solely a marginal improve in danger with the Class B notes, which have been 4 instances oversubscribed. Vantage’s foray into European ABS comes at a difficult time for the market. Knowledge compiled by JPMorgan factors to 57 billion euros of issuance up to now in 2025, on monitor for a steep decline from the 140 billion euros raised in 2024. Analysts level to macroeconomic uncertainty as being largely answerable for the dearth of deal-making. Development The offers are designed with Vantage’s international growth in thoughts. The corporate additionally operates in main knowledge middle hubs in Dublin, Milan, Warsaw, Johannesburg and Zurich. Its footprint additionally spans the Asia-Pacific area, with amenities in Malaysia, Australia, Japan, Hong Kong and Taiwan. Vantage is now “very keen” to convey the identical securitization mannequin to its different markets, Cosgray added. He prompt the corporate is extra more likely to problem debt in native forex in these areas and can start the method by the top of subsequent yr. Julian Craughan, a companion at Hogan Lovells, who suggested Barclays, prompt that given {that a} blueprint has been established, there’s scope for better flexibility in future offers as different data-center operators enter the securitized debt market in Europe. “Traders have gotten one deal below their belt in continental Europe,” mentioned Craughan. “There’s scope for additional innovation sooner or later, for instance we might be able to construct these [ABS deals] out to incorporate knowledge facilities in a number of jurisdictions as collateral as we see within the US market.”
