(Bloomberg) -- A data-center landlord leasing to the operators of the artificial intelligence matrix secured the highest credit grade from one of the top three ratings firms for the first time.
Some $500 million of Compass Datacenters LLC's latest $830 million asset-backed securitization carries a Aaa rating from Moody's Ratings. The highly rated debt was able to secure a rate of 1.20 percentage point above its benchmark on Wednesday, after initial talks of around 1.25 to 1.35 percentage point.
It's the first time either S&P Global Ratings, Moody's or Fitch Ratings has handed out a triple A rating to a data center ABS deal, although Morningstar DBRS, a smaller credit grading firm, has assigned previous Compass offerings its highest rating.
Getting such a stellar grade from one of the big three ratings companies means the company selling the debt can secure financing at a lower cost than what's typical for other asset-backed deals. A top rating from a leading ratings firm also opens up the debt to a wider swath of institutional investors as borrowers look for new ways to access capital.
The securitization is a part of a broader artificial-intelligence debt binge where borrowers — especially the big tech giants like Amazon.com Inc., Microsoft Corp. and Alphabet Inc. — are tapping all corners of the credit market for funding.
The other two classes of the Compass deal were rated Aa3 and A2 by Moody's, which started grading data center ABS in September. The only tranche to price tighter than the guidance range was the AAA — the others priced at the lower end.
Moody's said Compass' deal benefited from the investment-grade ratings of its tenants — unnamed hyperscaler companies — as well as strong cash flows, long customer contracts and relatively low leverage.
The underlying assets for Compass's recent data-center bonds primarily include six newly developed data centers: five in Phoenix and one in Toronto and leases made to its investment-grade hyperscaler tenants.
"Strong and stable cash flows is among the biggest ratings drivers," Terrence Donohue, a Moody's analyst, said in an interview.
Donohue said the lower loan-to-value ratios in Compass' offering was another factor in the high rating, since the more real estate equity the borrower holds implies less stress on credit. The offering's highest-rated portion carries an LTV ratio of about 31.5%. In October, Compass bonds that were rated AAA by Morningstar DBRS with a nearly 51% LTV were sold at a 1.25 percentage point spread to their benchmark.
It's hard to predict whether there will be more of such highly rated deals in the future, Donohue said.
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