How Vantage created a new asset class for European investors to gain exposure to cloud and AI data centers
A notable bond deal earlier this month not only provided hundreds of millions of euros to Vantage Data Centers but also created a new asset class for investors across Europe and a blueprint for similar companies to follow. Denver-based Vantage raised 720 million euros ($820 million) through the continent's first euro-denominated bond deal backed by its German data center assets, including an option to tap an additional 80 million euros. The asset-backed securitization (ABS) arrangement followed a similar £600 million deal ($840 million) in the U.K. last year. Both transactions, engineered by investment bankers at Barclays, do more than bankroll the company's growth. The deals, put together by law firms Clifford Chance and Hogan Lovells, have enabled European investors to gain direct exposure to the growth in cloud computing and artificial intelligence for the first time. Asset-backed securitization In an ABS, a company borrows money by issuing bonds against a pool of expected income from underlying assets as collateral. For data centers, the "assets" include the physical infrastructure — large facilities, cooling systems and power grids — along with long-term lease agreements with tenants, who in the case of Vantage were large cloud providers known as "hyperscalers." The stable cash flows that data centers typically generate are highly attractive to bond investors and allow operators like Vantage Data Centers to secure cheaper, fixed-rate financing to pay off more expensive construction loans. The bank loans are then recycled as investments into new projects. For Vantage, this model is central to its growth strategy. "The ABS, or securitization market, is the North Star from a financing perspective for this asset class," said Sharif Metwalli, Vantage's chief financial officer. "We are replicating the success we've had in North America in [Europe], and the plan is to do the same in other regions." Traditional bank financing might face limitations given the scale and pace of current expansion. The global data center market was valued at $195 billion in 2022 by real estate specialists CBRE. Consultants at McKinsey project that this will grow at a compounded annual growth rate of about 20% until 2030. The timeline for those forecasts is also being accelerated by the joint venture between Oracle , OpenAI, and Japan's Softbank, which announced a $500 billion investment over the next four years to build data centers to host AI supercomputers known as "Stargate." Given the backdrop, Vantage, through its British pound and euro-denominated deals, not only lowered its cost of borrowing but also effectively created a new asset class for institutional investors to gain exposure to this rapid growth. "I think it takes a player such as Vantage, who are familiar with the benefits of data centers, as well as public ABS issuances from the US, to be a pioneer for the market in Europe and introduce that type of financing," said Michael Nartey, who leads the structuring team at Barclays Investment Bank, which was behind both deals. The sheer growth, he noted, meant the industry "can't continue to just be financed by the private markets." Deal details Entry into Europe wasn't without its share of hurdles. The lack of comparable transactions historically meant the company and its investment banks, which also included Deutsche Bank on the German deal, had to undertake considerable investor education. The first U.K. transaction, which concluded in June 2024, took over nine months to execute, largely because of the intense "investor education process" required. "A lot of investors were very keen to understand the asset class, but didn't have much background on how, or even what, a data centre was," Nartey told CNBC. However, by the time of the German deal, investors reportedly began asking the "pertinent and more important questions" rather than just the fundamental "education-based questions," indicating increased familiarity with the asset class. Aside from the need to convince investors, concerns from rating agencies had to be resolved ahead of any bond issuance. Emma Matebalavu, a partner at law firm Clifford Chance that represented Vantage, explained that, unlike a typical European real-estate bond deal, Vantage's ABS structure required the bond-issuing entity itself to own the data-center properties. That required intricate legal work to ring-fence the assets within an existing business. Dietmar Helms, a partner at Hogan Lovells who advised Barclays, noted that for the German deal, a "bespoke" solution was needed to meet German real estate laws and tax rules while satisfying rating agencies that investors will not be faced with a sudden tax charge and dent their returns. "Every time that you sell a property, like a piece of land with a building, usually you pay a certain percentage of the value to the tax office," Helms explained. "A deal like this should be structured in a way that minimises the relating risks to give investors enough comfort on the robustness of the structure, because otherwise, the deal would just not make sense from an economic point of view." 'First-mover premium' This early move in Europe also came with a "first-mover premium" — a higher rate demanded by investors, given the lack of precedent. "The reason for this slight premium on spreads versus other comparable North American ABS transactions is really driven solely by relative liquidity in the market and general investor education," said Rich Cosgray, senior vice president of global capital markets at Vantage Data Centers. However, the company indicated more favorable terms were achieved — a drop of about 15 basis points above benchmark rates — in its second transaction in Germany, as an indicator of investors becoming more comfortable with this type of bond. "I would argue that data center issuance has become less of an 'esoteric' asset class in the US, given how many issuers are now accessing the market," Cosgray added. "We're still early in [Europe, the Middle East and Africa], but the liquidity is growing." What's in it for investors? Under the ABS structure, the creditworthiness of the tenants is paramount, as the bond's coupon payments are reliant on them. The four Vantage facilities in the German deal are fully leased to three hyper-scale companies, all rated AA- or higher, with the largest holding a coveted AAA rating, according to a note from Scope Ratings. The two recent European deals also borrow ideas from their previous U.S. transactions. For instance, the "soft bullet" style, whereby bonds are repaid within five years even though they mature decades later, is a feature of deals on both sides of the Atlantic. That meant that Vantage was able to attract its traditional U.S. investor base to its European issue. Vantage said the latest transaction also helped it broaden its European investor base. "We saw a lot more European dedicated insurance capital, fund managers, ABS buyers, come into this deal," Cosgray said. "The liquidity that we're expanding in this market is real securitization depth for European investors." The structure of the German deal also evolved from the U.K. deal by offering investors two tranches of debt: a senior Class A note rated A- and a smaller, subordinated Class B note rated BBB-. Both notes are considered investment grade by Scope. "I don't think investors view the credit risk for the B notes relative to A notes as significant but they're getting a better coupon," said Metwalli, Vantage's CFO. He highlighted that investors received a 65-basis-point pickup in yield for what could be perceived as only a marginal increase in risk with the Class B notes, which were four times oversubscribed. Vantage's foray into European ABS comes at a challenging time for the market. Data compiled by JPMorgan points to 57 billion euros of issuance so far in 2025, on track for a steep decline from the 140 billion euros raised in 2024. Analysts point to macroeconomic uncertainty as being largely responsible for the lack of deal-making. Growth The deals are designed keeping Vantage's global expansion in mind. The company also operates in major data center hubs in Dublin, Milan, Warsaw, Johannesburg and Zurich. Its footprint also spans the Asia-Pacific region, with facilities in Malaysia, Australia, Japan, Hong Kong and Taiwan. Vantage is now "very eager" to bring the same securitization model to its other markets, Cosgray added. He suggested the company is more likely to issue debt in local currency in those regions and will begin the process by the end of next year. Julian Craughan, a partner at Hogan Lovells, who advised Barclays, suggested there was scope for greater flexibility in future deals as other data-center operators enter the securitized debt market in Europe. "Investors have got one deal under their belt in continental Europe," said Craughan. "There is scope for further innovation in the future, for example we may be able to build these [ABS deals] out to include data centers in multiple jurisdictions as collateral as we see in the US market."
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