The AI boom is driving explosive demand for data center capacity. To fund new build-outs, data center owners are increasingly using asset-backed securities (ABS). By pooling data center leases or revenues into a special-purpose vehicle (SPV), issuers can sell bonds to institutional investors and recycle the proceeds into construction or acquisitions. ABS deals can unlock capital more efficiently than bank loans alone, especially when backed by investment-grade ratings & tenants using these data centers. In 2024–25, several landmark data-center ABS transactions closed, introducing innovations like green-bond features and rating enhancements. I am reviewing two deals (Switch and Vantage) which were executed in last 2 years plus plus related trends and investor perspectives.
How Data Center ABS Works
In a typical data center ABS, the data-center owner (or its SPV) “sells” or pledges a portfolio of data center properties and their lease contracts to an ABS vehicle. This vehicle issues tranches of notes to investors (senior and subordinate). Investors receive principal and interest paid from the lease revenues or service fees collected from tenants (often cloud providers, AI firms or enterprises). The deal usually includes credit support (equity or over-collateralization) and sometimes liquidity facilities to buffer cash-flow gaps. In effect, the ABS converts illiquid real estate and long-term leases into marketable bonds.
This structure frees up balance sheet and provides new funding beyond traditional bank debt. For example, a developer can raise $500 million today by issuing senior and junior data-center ABS, use the cash to build or buy more data centers, and pay investors over time from stable rent streams. Investors (pension funds, insurers, asset managers, etc.) gain high-rated exposure to real estate with long-term leases to creditworthy tenants.
Leveraging securitization, data-center firms finance growth or refinance at scale. Issuers can achieve lower borrowing costs if they get strong credit ratings. It also broadens the investor base: aside from banks, life insurers and pension plans often have mandates for long-duration ABS with predictable cash flows. In a tightening bank-credit environment, ABS has become an essential “capital recycle” tool for leading data-center operators.
Year 2024–25 Deal Examples
Two past deals illustrate how data-center ABS has taken off and what features they include:
Vantage Data Centers (June 2024, Europe). Vantage executed the first-ever data-center ABS in EMEA [Europe, Middle East and Africa], raising £600 million (about $750M). The offering comprised amortizing term notes plus £100M of Variable Funding Notes (VFN) that can be drawn if needed. Ratings agencies gave the senior notes high grades: “A-” by S&P Global, “A (low)” by DBRS Morningstar and “A” by Scope. All proceeds went to refinance existing debt (for two Cardiff, Wales campuses) and fund growth projects. Notably, this was a “Green ABS”: Vantage secured a Green Bond certification (via Sustainalytics) and will use the money to improve energy efficiency (advancing UN SDGs). This deal shows that European data centers can tap ABS markets with ESG features.
- Structure: True-sale of leaseholds at a multi-tenant campus. Issuer (a Luxembourg SPV) sold securitized term notes with a 5-year amortizing life. It used standard credit support (subordination).
- Ratings: Senior notes rated A-/A(low)/A by S&P/DBRS/Scope (around A-range).
- Investors: While the release doesn’t name buyers, similar European deals typically attract insurers, pension funds and bank-affiliated investors looking for yield and ESG. Barclays and SMBC Nikko arranged the deal.
- Innovation: First euro-denominated data center ABS; structuring as a Green ABS under Vantage’s green-finance framework. Introduced variable funding notes (like a revolver) for flexibility.
Switch, Inc. (Oct 2025, USA). Switch, a US campus developer, closed its fourth data-center ABS for $659 million. It had two classes of notes (Class A and Class B). Uniquely, this deal included the first-ever AAA tranche in a non-hyperscale data-center ABS. DBRS Morningstar rated the A-2 notes at AAA, AA (low), A (low) and the B notes at BBB (low). All ABS deals since 2024 qualify as secured green bonds for Switch, and this time all proceeds are earmarked for new construction of AI-focused and hyperscale facilities.
- Structure: The SPV holds ten Switch data centers (across several campuses) and issues Senior (A) and Junior (B) notes. The A-2 tranche hit AAA from DBRS (a first for Moody’s/S&P/Fitch to not be involved) and the BBB from DBRS for class B.
- Ratings: In place of the “Big Three,” DBRS issued all ratings (AAA/AA(low)/A(low) on Senior, BBB(low) on Subordinated).
- Investors: Likely attracted life insurance companies, pension funds and yield-oriented mutual funds. Achieving an AAA tranche expanded the pool of buyers to include the most conservative investors.
- Innovation: Marked “the first AAA-rated tranche in non-hyperscale data center ABS”. Reinforced the trend toward ESG financing: Switch bonds are all labeled as secured green bonds, tying them to sustainable construction. Switch also retired all its bank debt in July 2025, then shifted to this new ABS to fund future builds (especially AI co-location business).
(For context, Compass Datacenters – a Brookfield/Ontario Teachers platform – also tapped ABS in 2025. In mid-2025 Compass issued notes collateralized by 6 new data centers (5 in Phoenix, 1 in Toronto) fully leased to IG hyperscalers, and in early 2026 its $830M ABS saw $500M AAA from Moody’s. This underscores that top tenants and low leverage can unlock AAA ratings in data center ABS.)
Innovations and Trends
Green/ESG financing: As seen with Switch and Vantage, data center issuers are adding green bonds features. Sustainable design (LEED certifications, efficient cooling) is now baked into many transactions. Ratings agencies and investors prize this: green classification often requires third-party review (e.g. Morningstar Sustainalytics) and commitment of proceeds to eco-friendly projects.
Higher ratings and credit enhancements: In 2025, the market proved AAA is possible if deals are well-structured. (Moody’s even broke convention by giving AAA to Compass 2026 bonds.) Fitch publicly stated co-location ABS “could” achieve triple-A if key factors align (e.g. a top-quality servicer and low LTV). New rating criteria from Fitch (Sept 2025) and Moody’s (Feb 2025) reflect this evolution – each sets out how metrics like tenancy concentration, lease tenor and servicer quality impact ratings. Deals have increasingly broad tranches (A, B, sometimes C) to boost subordination, plus structural triggers tied to occupancy or cashflow.
Revenue-backed structures (AI services): Most data-center ABS today are lease-based (fixed rents). However, firms are exploring revenue-backed models where bonds pay off from usage-based fees or software-as-a-service contracts attached to the data center.
Tokenization & tech: Though no major ABS was tokenized some firms are piloting blockchain platforms to fractionalize securitizations. This could make data center ABS more accessible to smaller investors in the future. Also, enhanced data reporting tools (AI-driven asset monitoring, real-time covenant testing) are being introduced to give investors deeper transparency on performance. Dynamic covenants (e.g. adjusting triggers as power usage changes) are another innovation under discussion.
What It Means for Issuers, Investors and Dealers
- Issuers/Developers: Data center operators considers ABS as part of their capital stack. Using ABS can recycle capital from existing builds into new projects at competitive rates, especially when backed by solid tenants. To attract top ratings, focus on securing investment-grade customers and maintain low loan-to-value levels. Incorporating ESG credentials (like green building standards) can also widen investor base apart from only dependent on bank credit.
- Investors (Insurers, Pensions, Funds): Data-center ABS offer a relatively new way to access real assets with long-term, inflation-linked cashflows. AAA or AA-rated tranches appeal to conservative investors (e.g. life insurers), while subordinated tranches can suit higher-yield mandates (e.g. asset managers). In due diligence, closely examine lease contracts (length, rent escalators), co-location or cloud-service commitments, and the sponsor’s track record. Watch for any sponsor equity, reserve accounts or guarantees that cushion downside.
- Dealers/Arrangers: Success in this space depends on investor education. Explain clearly how a data-center ABS differs from other REIT [Real Estate Investment trust] or corporate bonds. Stress the credit profile of tenants (often big tech companies) and how cash flows are structured in the SPV waterfall. Highlight ESG factors if present. Since this asset class is still gaining familiarity, maintaining ongoing dialogue and reporting with investors is vital. Each new issuance, especially a high-profile one like a first AAA tranche, helps deepen the market and bring in more capital.
Data center ABS is moving from niche to mainstream as AI growth strains capital needs. Recent deals (Switch, Vantage) show the model working: large fund raises, attractive ratings, and sustainability features. For lenders and investors, the lesson is that well-structured data-center ABS can offer stable, long-duration returns. For issuers, the lesson is to leverage this “funding bridge” responsibly—keep underwriting strong, be transparent, and innovate with ESG and tech tools. Done right, data-center ABS helps build the digital infrastructure powering AI without hitting the balance sheet limit of any one bank or owner.
References: Vantage Data Centers press release (June 2024); Switch, Inc. press release (Oct 2025); Bloomberg/Data Center Knowledge report on Compass Datacenters (Feb 2026); Data Center Dynamics (Compass 2026-1 notes).
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