Clifford Chance

This article - first published by TMTFinance - explores two approaches currently shaping datacentre financing: portfolio financing and asset-backed securitisation (ABS). Portfolio financings allow developers to consolidate multiple single-asset financings into a unified structure, reflecting the sector's growing maturity and need for more scalable funding models. ABS provides a cost-effective route to refinance development debt by leveraging stable, long-term tenancy cash flows to access capital markets on favourable terms.

Both structures are gaining traction as the sector evolves, supporting ongoing investment in hyperscale and AI infrastructure.

Portfolio financing

Developers with mature portfolios are increasingly consolidating multiple single-asset financings into unified structures. Recent multi-billion euro deals show growing bank and institutional investors support for large-scale, multi-asset structures. With AI and cloud demand rising, portfolio financings are expected to become more prevalent in the refinancing market.

These financings offer a more scalable funding model, compared to standalone project or real estate development financings, by pooling operational and development-stage assets.

Key Benefits Include:

• Structuring flexibility. Cash pooling mechanisms allow financial ratios to be calculated on a consolidated basis at the HoldCo level, improving cash management and reducing the impact of underperformance at individual assets. Default provisions, MAE clauses and covenants are typically structured at the portfolio level, providing a more balanced risk profile.
• Scaling and refinancing gains. Larger portfolios benefit from economies of scale, including lower O&M costs and refinancing costs. A quasi-corporate credit risk profile (vs. pure project finance) can support higher leverage, reduced security constraints and more flexible repayment terms. Capital can be allocated across multiple sites, allowing developers to allocate funds efficiently as they scale operations.
• Debt capacity. Lenders assess cash flows across all assets, enabling higher debt quantum and more competitive pricing.
• Risk mitigation. Diversification across assets, geographies and tenants, reduces reliance on a single facility.
• Syndication. Larger deals allow lenders to participate in high-value transactions while syndicating portions of the debt to other financial institutions. This attracts a wider lender base, including private credit funds, pension funds, infrastructure funds and institutional lenders.

Key structural features:

• Security package. Rather than relying on asset-level mortgages, security is increasingly taken over HoldCo shares, bank accounts and intercompany receivables. This allows enforcement at HoldCo level on a "going concern" basis. Some lenders (especially real estate-focused) may still require mortgage security for regulatory or credit reasons. Hyperscaler contracts may also require SNDAs.
• Financial covenants. Group-level covenants are typical (e.g. DSCR, net leverage ratios, tenant concentration restrictions). EBITDA adjustments may reflect pre-let revenues, ramped customer contracts, or Excluded Subsidiary distributions. Treatment of debt- funded capex is key, especially for campuses under construction.
• Hyperscaler customer contracts. Lenders may require pre-agreed or investment-grade counterparties and WAULT thresholds. Repayment triggers in early termination scenarios must also be addressed.
• Drawdowns. Structures are often complex, especially for development capex. Lenders may require third-party diligence or self-reporting on permits, grid connections, budgets and RFS dates. Separate drawdown conditions may apply, depending on whether financing is being used for a contracted datacentre, uncontracted capital expenditure, or new site acquisitions. A central financing company often acts as borrower, downstreaming proceeds to PropCos while maintaining obligor/non-obligor leakage controls.
• Refinancing routes. Sponsors are using Excluded/Unrestricted Subsidiaries for future ABS or capital markets refinancings. Some transactions also utilise YieldCo/DevCo structures, allowing recourse to separate ring-fenced borrower groups.
• Enforcement/exit strategies. Unlike real estate financings, these structures rely on continuity of operations and customer contracts. Lenders must assess control rights in distressed scenarios, especially where shared infrastructure and O&M exist.
• Debt incurrence and additional assets. Accordion facilities and expansion mechanisms allow new assets to be added, subject to pre-agreed conditions, avoiding the need for costly refinancing or repeated lender consents. Lenders may impose conditions such as minimum asset performance thresholds, sponsor equity commitments or asset-level due diligence. This depends on the risk profile and the overall structure of the financing package.

Datacentre securitisation

A range of securitisation structures may be used to monetise stabilised datacentre assets. The most common is datacentre asset-backed securitisation (ABS), whereby rental proceeds under long-term tenancy agreements with one or more investment grade tenants of stabilised datacentres are used to service the securitised debt. Here, the focus is on the quality and durability of rental cashflows. Datacentres let to multiple hyperscalers typically present low refinancing risk, but rating agencies and investors are becoming increasingly comfortable with single-tenant datacentre ABS due to the high demand for, but low supply of, available datacentre space.

Rating agency methodology for datacentre ABS requires the tenant leases and the datacentre(s) to be owned by an insolvency-remote financing entity (or a subsidiary of the financing entity). Transferring ownership of the datacentre(s) from the originator's corporate group to an insolvency-remote SPV is often commercially undesirable, can involve adverse transfer tax consequences and may be practically difficult due to restrictive national security regimes in many jurisdictions (such as the UK's National Security and Investment Act 2021).

Datacentre ABS must therefore be structured to ensure that the financing entity and, if applicable, each PropCo are, to the greatest extent possible, insolvency remote while remaining part of the originator's corporate group. For example, the operationally intensive nature of datacentre campuses, often constructed with shared power connections and other shared infrastructure, adds pressure to the insolvency remoteness analysis and requires careful consideration. Complex and challenging tax structuring will also be required to minimise tax leakage in the financing group because preferential securitisation tax regimes will not be available for non-SPV issuers.

Another securitisation structure which can be used is commercial mortgage-backed securitisation (CMBS) of datacentre assets, whereby the proceeds of the issuance of securitised debt are used by the issuer to advance a loan, secured by a mortgage over the datacentre(s), to the datacentre developer or operator. Rental proceeds are again used to service the securitised debt, but the focus is on the value of the underlying datacentre(s) in an enforcement scenario.

Datacentre ABS often results in better pricing (the first datacentre securitisation in EMEA, which closed in May 2024, used a datacentre ABS structure, for example). Another notable factor is the location of the datacentres in the financed portfolio. Datacentre ABS may be suitable if all datacentres in the financed portfolio are located in a single jurisdiction, whereas CMBS of datacentre assets may be particularly suited to transactions involving datacentres located in multiple jurisdictions. It is possible, therefore, that CMBS of datacentre assets may become more prevalent in the European market compared with other markets around the world.

Whichever structure is used the underlying tenant leases will be a key focus of the diligence process and credit underwriting. Tenant leases of datacentres entered into with hyperscalers are bespoke agreements and often contain terms which pose challenges when securitising the lease receivables created by them. For example, tight confidentiality provisions and restrictions on the ability of the datacentre propco to grant security interests over its rights under the relevant tenant lease will impact the securitisation structure and transaction documentation.

In any event, tranching of securitised debt means that an increasing range of investors are looking at datacentres as an asset class. Senior, high-quality securitisation tranches are notably bought by, among others, insurance funds and infrastructure investors who are attracted to long-term and lower-risk investments, while debt funds are attracted to higher- yield mezzanine tranches in securitisation transactions. In addition, in the US market, the relatively low loan-to-value ratio of datacentre securitisations is presenting opportunities for private credit to step in and offer cheaper mezzanine or preferred equity to sit above the common equity. Securitisation is therefore increasing liquidity in the datacentre financing market, which is helpful ahead of a large refinancing supply expected to come to market over the next few years.