First lien mortgage and lease payments from users of data centers, most of which are located in California, Illinois and Texas will secure the $250 million asset-backed transaction from the Stack Infrastructure Issuer, 2023-1.
Instead of new properties being added to the Stack Infrastructure Issuer master trust, the existing properties saw higher constructed and lease capacity at its existing data centers, which in turn drove their aggregate appraisal value to $2.6 billion, from $2.1 billion, according to a pre-sale report from S&P Global Ratings.
Analysts expect this equity extraction to close by somewhere in the third week of March. Morgan Stanley & Co., Guggenheim Securities and SMBC Nikko Securities America are the arrangers on the deal, and Midland Loan Services is expected to act as servicer on the deal, S&P said.
The collateral includes properties that are financed with triple-net leases, in which the tenant is responsible for rent, taxes, insurance and electricity expenses, and modified gross leases, where those expenses are not broken out and the tenant doesn't explicitly reimburse the landlord for them. It is understood, however, that the base rent does cover those expenses.
The deal will finance data centers that are both turnkey and powered shell facilities. They have relatively long contract terms, with a weighted average (WA) remaining term of 6.6 years. Properties located in San Jose, Calif., and Chicago are currently undergoing expansions the rating agency only gave credit to the cash flow from the built and leased properties.
The leases and mortgages have a maximum loan-to-value ratio of 70%, and the notes benefit from a $17 million liquidity reserve account at closing, funded by a combination of cash and letter of credit. Other forms of credit support include a cash trap trigger that comes into play should the three-month average amortization debt service coverage ration (DSCR) levels reach 1.30x. There is also an early amortization trigger that goes into effect should the three-month DSCR reach 1.20x, according to S&P.
Stack Infrastructure 2023-1 will issue one class of notes, and S&P intends to assign an 'A-' rating to it.
As for the notes' timeline, they have zero annual scheduled amortization, a five-year expected repayment date and a 25-year legal maturity.
