Data center leases on seven properties will secure $410 million in asset-backed securities (ABS), on the way to market from Sabey Data Center Issuer, 2025-1.
Sabey Center Properties is the manager on the transaction, which will sell one tranche of five-year A2 notes to investors, according to S&P Global Ratings. Guggenheim Securities is on the deal as arranger. Midland Loan Services will service the notes.
The collateral is composed of personal property and fixtures located in the data centers, tenant leases, plus other income streams like reserves and escrows, and the equity interests in each of the asset entities, S&P said.
Some of the money raised through this offering will terminate related commitments of the A1 notes from the series 2020-1, S&P said. It will also use some of the funds to pay down the A2 notes from that series.
The deal is expected to close on February 20, according to Asset Securitization Report's deal database. S&P says the securities are expected to mature in five years, but they also have a legal maturity of 25 years.
The properties are located across four states: Washington, Virginia, New York and Texas. Current tenants have relatively long average contract terms of 6.5 years on a weighted average basis, which S&P considers a credit strength. Data center tenant relocations are normally costly, so their tendency to stay in their leases contributes to historically low churn rates. That stability strengthens the notes' underlying credit, the rating agency said.
It also helps that tenants also have a high average credit quality, with 75.9% of them having at least an investment grade rating. Lease assets in the class A notes have a loan-to-value (LTV) ratio limited to 70%.
Sabey Data Center also includes performance tests that will trigger cash trapping, or early amortization if the debt service coverage ratio drops below certain thresholds.
Although the transaction has a considerable list of strengths, S&P noted a few factors that could offset those. For one, the transaction has liquidity reserves based on a formula of note interest, priority expenses and capital spending, but those reserves could still come up short if a disruptive event—like a natural disaster—renders takes the data center offline for an extended period.
