Aligned Data Centers Issuer is preparing to sell $350 million in asset-backed securities to investors secured by a mix of revenue and interests from a collateral pool of six data center campuses.
The data centers have an appraised value of $3.8 billion, with 32 tenants, according to ratings analysts from S&P Global Ratings. Under Aligned 2022-1, the collateral had an assigned value of $1.2 billion and an average cap rate of 8.7%.
Among the transaction's strengths, the current tenants have a high average credit quality. Some 74.0% of the tenants in the collateral pool have a high average quality, of investment grade or equivalent. The pool also has a low customer churn rate, partly supported by the high cost of tenant relocation. S&P also notes that the class A notes have a loan-to-value ration that is constrained at 70.0% of the assets' appraised value at closing.
Guggenheim Securities is the deal's sole structuring advisor and KeyBank is its servicer, according to S&P.
Further, supply and demand for wholesale data center are in balance for the markets where the centers are located. That includes Northern Virginia, which is the largest data center market in the world. Indeed, 70% of the world's internet traffic runs through the area, which also has the world's highest density of dark fiber in the world. Other healthy markets supplying data centers to the trust include Phoenix, Dallas and Salt Lake City, the rating agency said.
Yet the transaction does have a number of weaknesses. For one, the pool is not diverse geographically or by industry. Most tenants are in various subsector of the technology industry, S&P noted. Aligned Data Centers, the manager, has a relatively short industry operating history. The transaction also has a shorter weighted average (WA) remaining term than other hyperscale data center deals that it has rated, at 5.4 years.
S&P expects to assign a rating of 'A-' to the $350 million, class A-2 note, which have a legal final maturity of Aug. 17, 2048.
