Equinix, the US-based data centre operator, issued a £280m data centre securitization last week, which took a new tack in wooing European investors to this still young asset class.
Led by Goldman Sachs, the fixed rate note issued on July 29 by Equinix xScale Secured Funding 2026-1 was rated A3/A by Moody’s and S&P, with a September 2031 anticipated repayment date. It was priced at 130bp over Gilts.
The bond is backed by a loan secured on two data centres in Slough, leased to three investment grade tenants.
The borrower of the loan is Equinix Hyperscale 1 Holdings, the sponsor, which is owned 80% by the Government Investment Corp of Singapore and 20% by Equinix.
The loan is non-recourse, so the sponsor has no obligation to support it, though it might choose to if it has an economic incentive such as retained cash equity, according to Moody’s presale report.
The deal is clearly and fully a commercial property securitization. But it was marketed to investors as a corporate bond, and found favour with investors that typically buy corporate bonds.
The difference may only be one of presentation, but it is notable that the deal team wanted to try something different.
Offshoot of the US market
Data centre securitization is developing well in Europe since the first deal by Vantage in 2024, though issuance is still far smaller than in the six years older US market.
This year there have been debut deals by Yondr and EdgeConneX.
But the transactions have not yet found a large local investor base willing to gobble them up. They rely partly on demand from the much more experienced US investors.
US buyers have played a major role in the market since the beginning. When Vantage launched its debut deal in 2024, 36.3% went to US buyers.
All the data centre securitizations issued so far, from Vantage, Yondr and EdgeConneX, have been documented under Rule 144A, meaning they are open to US institutional investors.
Unfamiliar fare
There is nothing wrong with this, nor is it uncommon. UK specialist residential mortgage lender Together used 144A documents for its £507m first lien non-conforming RMBS last month, for example.
But some aspects of data centre deals make them difficult for some European securitization investors.
So far, they have all been fixed rate — natural enough for securitizations by companies, rather than banks, which are based on property.
But European ABS investors since the financial crisis have got used to a diet of personal finance securitizations (including residential mortgage deals) which are inherently floating rate assets, logically securitized into floating rate notes.
Some are not used to buying fixed rate bonds, or even have investment mandates that preclude it.
On top of that, they are only beginning to learn how to analyse the specific credit proposition of data centres. They are real estate, but with special characteristics — they have very high power demand and face obsolescence risks that are hard to predict.
Neat tactic
Supply of more deals will create demand — if there is paper available, investors will educate themselves to buy it.
But for now, Equinix has made a smart move by trying to present its deal differently, to a different audience.
It is difficult to judge the manoeuvre's success precisely, but it would appear to have worked.
Comparing different deals six months apart is not apples and apples. But it is worth noting that on February 20, when Yondr priced the last data centre securitization in sterling, called by the deal team an ABS, it required a higher spread than Equinix's.
The £532m senior notes of Yondr UK 2026-1, rated AA/AA (low) by Fitch and DBRS with a 4.99 year average life, were priced at 165bp over Gilts.
It is perfectly acceptable to rely on US demand while the market is in its early stages, and issuers will always welcome US investors.
But the more European funds begin to buy into the asset class, the better it will be for the data centre industry. Equinix has taken a fresh path, and likely made some new friends.