In what the company says is a data centre industry first, Vantage Data Centers has used securitization financing to raise $1.1 billion (approx. £790 million).
Approximately half of the funds will go to pay off bank credits, with the remainder to be used to construct new facilities in Santa Clara, CA and Northern Virginia. Additional expansion into new markets will also be considered.
Securitization financing involves the creation of a security based on the credit-worthiness of a portion of held assets, rather than the entire company. Vantage issued debt notes from income-producing properties – existing data centres – which are tenanted by large, credit-worthy companies.
CEO Sureel Choksi explained, “Three-quarters of our revenue comes from investment-grade tenants. Fundamentally, what this allows us to do is to finance separately the assets of the business that are generating income from those in development.”
The financing was based on a set of six active data centres owned and operated by Vantage: five in Santa Clara, California and one in Quincy, Washington.
This strategy was apparently a success. The notes that were issued in this round of financing achieved an A- rating from Standard and Poors; until now, Digital Realty was the only leading data centre company to gain an investment-grade bond rating from S&P.
The bond rating means that Vantage can borrow money at a more attractive rate, as the S&P evaluation means that they are a lower-risk borrower. And with the amount of capital investment required in data centre construction, this presents a significant advantage.
The notes issued by Vantage were 10 times oversubscribed, meaning that investors were willing to purchase up to $10 billion in notes, had they been available. This indicates strong support both for Vantage, and for data centre securitization financing, which could be applicable to future financing of data centre builds.
While securitization financing is a new factor in the data centre industry, Digital Bridge, which was part of the consortium that purchased Vantage in March 2017, is experienced in this type of funding for wireless telecommunication tower builds.
Mr. Choksi noted that Vantage was able to leverage Digital Bridge’s expertise in securitization financing for wireless telecom, to apply it to the data centre industry.