US fiber ABS offers alternative to data center glamour

Insatiable data consumption across the US has fueled the growth of fiber internet across the country.

While it may be the funding of data centers that is capturing much of the public’s attention, it is the financing of this other part of data infrastructure that is tipped to provide a $12bn market in asset backed securities in 2026. 

The need for fiber optic cabling is vast. The exponential growth of data centers across the US and the need to connect them to the network must be financed, much of which may be done in the asset-backed securities market.   

At the other end of the spectrum, connecting domestic households with fiber cabling is increasing, with fiber penetration across the US expected to rise by 20% by 2028 when, according to the Fiber Broadband Association, about 80% of the country will have access to a fiber internet connection. Again, raising the capital to do the work at scale is likely to involve issuing ABS.

The volume of fresh fiber-backed ABS in the 144A market tripled last year to $12bn. KBRA predicts a similar volume for 2026.

Last year’s boom in issuance was dominated by deals backed by cash flow from enterprise fiber and dark fiber providers.

Enterprise fiber, otherwise known as lit fiber, describes cabling where the service provider maintains the network and sells bandwidth to users.

Dark fiber refers to networks where the user installs and maintains its own equipment to make use of the cable at both ends. It is vital for companies in the data center business which do not share their fiber connections.

Globally, the dark fiber market is projected to achieve compounded annual growth of about 16% until 2033 to reach $21.8bn, according to Research and Markets, a market research company.    

Each type of fiber network presents a different investment proposition in a securitization.

“Dark fiber is less [about] the monthly broadband internet subscriptions and more providing fiber to businesses and connecting cell towers to the network," says Andrew Butville, head of ABS investing at MetLife Asset Management. “That offers more consistent cash flows than you typically see for a consumer-focused retail broadband network."

In a research note published last year, KBRA says: “Enterprise fiber often spans entire regions or multiple areas across the country. For instance, the [issuer] Zayo’s master trust includes contracts across 21 states and Washington D.C., primarily in the north-east and mid-west. Enterprise fiber supports a broader range of connection types tailored to a diverse client base, which includes wireless and network carriers, hyperscale data center operators, financial institutions, technology and media companies, as well as federal, state, and local government agencies.”

At least five prospective debut issuers of fiber ABS are expected to attend the Structured Finance Association's annual conference in Las Vegas during February, investors have told GlobalCapital.

Fiber-backed ABS typically securitize the receivables paid under contract to the network owner for access to it. It is an asset class that investors are eager to investigate, not least because it offers more opportunities to invest than data center ABS.

“Looking broadly across digital infrastructure ABS, we like fiber a bit more than data centers right now,” says Michael Nowakowski, head of structured products at Conning. “We view fiber as the guts to data centers, but it goes beyond that too. This is essential technology; essential infrastructure for businesses, for wireless carriers and for residential customers.”

The asset class also offers a greater degree of certainty over the technology behind the underlying collateral when compared to data center ABS.

“What the technology evolution is going to look like for data centers during the time these bonds are in existence is unknown,” says Nowakowski.  “I don't think fiber is going to change that much fundamentally between now and the time deals that are coming today will mature or be refinanced.”

Fiber ABS also has another advantage over data center ABS: variety.

“The one opportunity that fiber offers that you don't see as much in data centers is for subordinate tranches — the triple-B, double-Bs,” says Butville. “You do see those in some of the co-location data center deals but they are generally not very common for the hyperscale data center deals.”

Co-location data centers are those with several tenants whereas the hyperscale variety are typically occupied by a single, large client.

It is not just whether an ABS is backed by dark or enterprise fiber networks that has a bearing on the decision to invest, however.

Firstly, there is the matter of the issuer’s growth potential once fiber is installed in a particular area.

Companies to have priced recent fiber-backed securitizations have tended to have 30% penetration of local markets, according to Xilun Chen, who leads KBRA’s fiber ABS ratings practice.

“For most fiber to the premise providers, the goal is often to reach long-term penetration rates above 35%-40%," he says. “But once you start to get into 20% and 30% penetration, the rate of growth often starts to flatten out.

“We often see newer markets that are a year or two post-development and commencement of cash flows, rather than three or four year[-old markets], being added to securitizations. So, you're likely to see growth somewhere in the pool.

“Competitors to fiber ABS issuer[s] are often times a cable operator and may also include a local exchange carrier.”

Competition is another factor that determines the attractiveness of an investment.

“The economics just don't work very well if you're the second entrant into a market that's building fiber,” says Butville.

Fiber-backed ABS issuance has had a rollicking start to 2026. The first deal of the year from Kinetic, the consumer fiber business of Uniti, achieved subscription levels not seen for months in the broader ABS market.

The deal’s $667.71m senior note, rated A- by both Fitch and KBRA, was priced at 150bp over the I-curve for a yield of 5.275%. The bonds were 13 times subscribed even after the pricing was tightened from initial price thoughts of low-200bp over the I-curve. 

A step down the stack, the $112.96m BBB-/BBB rated note that was priced at 185bp over was 22 times subscribed. The yield on that note was 5.625%.

The $41.8m junior notes, rated BB-/BB-, were 25 times subscribed, being priced at 400bp over after IPTs of low-500bp. The yield on that note was 7.775%. 

Collateral for the deal included revenue from existing and future residential fiber broadband customers in Georgia, Kentucky, Ohio, Texas and Arkansas. 

In marketing for the deal, investors were told Kinetic had one or no competitors offering fiber internet with a speed of 1GB in about 80% of the areas in which it operated. In those markets about 75% had fewer than 20,000 homes, according to information shared with investors.

As of September 30 last year, Kinetic had about 507,000 residential fiber customers in the mid-west and south east of the US in a network that had the potential to connect to 1.8m homes.

In recent months, senior fiber ABS notes have been priced with a spread of 150bp-220bp over the I-curve.

Despite the subscription levels on the Kinetic deal, it was still not the tightest fiber ABS to date over the past two years. That distinction belongs to a deal that landed at 130bp over, according to Bank of America research. 

The level of demand is driving a healthy secondary market too in.

BofA notes that there were 168 trades of fiber ABS paper between mid-December and mid-January with the average cash price being 101.50.

Besides large ticket equipment ABS, fiber ABS had the highest average trading price of any sector during that time, according to BofA. 

Fiber ABS issuance patterns may change this year.

“We expect some of the larger issuers to possibly tap the market once in 2026,” says Chen. “There's probably one or two re-financings that will happen this year.

“In 2025, we started to see a little bit of refinancing activity alongside add-ons from collateral growth and/or addition of new collateral.

“What may happen this year is that you may see some newer entrants come in where the deal size is potentially smaller, along with a select few issuances of significantly larger issuance sizes. Some of the smaller issuance may be due to collateral located in more focused markets." 

Deal structures similar to the MetroNet-T Mobile-KKR ABS transaction last year may also emerge. 

“Collateral for that transaction was wholesale fiber, where the wholesale agreement overlays the underlying residential fiber customer payments,” says Chen. “For some of the larger operators, the question may be whether to build a fiber network versus acquiring one.”

Consolidation of fiber providers is also a developing theme. Recent examples include Bell Canada’s acquisition of Ziply, a fiber provider focused on the Pacific north west, in a deal that expanded its fiber footprint to 1.4m US homes. Ziply issued ABS in 2024. 

Meanwhile, Verizon completed its acquisition of Frontier on January 20 and the combined entity has about 2.2m fiber customers. Frontier issued ABS in 2023 and 2024.