Wall Street has turned operating AI data centers into a $61 billion bond market, packaging real estate, tenant leases, and electricity costs into securities repaid from customer revenue. A July 29 SEC staff letter ruled qualifying deals fall outside the legal definition of an asset-backed security, cutting compliance costs just as data-center financing needs approach $1.5 trillion by 2028.
Once an AI data center is open and billing customers, its owner can move the facility and its leases into a separate entity that issues bonds. Investors get paid from tenant rent and service fees after electricity, maintenance, taxes, and insurance come out first.
In February, S&P assigned an A(sf) rating to Sabey Data Center Issuer's $475 million 2026-1 notes, backed by real estate and tenant lease payments. Across the sector, outstanding data-center securitizations expanded from roughly $4 billion in 2020 to $61 billion through July 2026, according to Structured Finance Association research drawing on Barclays data.
Electricity becomes a credit factor
A data center's value depends on secured megawatts as much as square footage. Lawrence Berkeley National Laboratory estimates US data centers could consume 649 terawatt-hours in 2030 in its reference case, equal to 11.8% of total US electricity use, with a wider model range of 521 to 843 TWh.
That range matters because power needs can shift substantially over a long-dated security's life, and denser chips can force costly retrofits mid-lease.
How the structure works
The transaction structure described to the SEC starts with tenant revenue, then deducts taxes, insurance, electricity, and operating costs before bondholders get paid. These deals typically keep debt at no more than 70% of appraised asset value, leaving at least 30% as sponsor equity, with an expected repayment point around five years against a legal final maturity of 25 to 30 years — a gap that creates refinancing risk.
The Structured Finance Association cites a Morgan Stanley estimate of $2.9 trillion in global data-center spending through 2028, with about $1.4 trillion covered by cash generated at large cloud companies and $1.5 trillion needing external finance. Securitizations and CMBS could supply around $150 billion of that gap, and a Barclays projection puts outstanding data-center securitizations as high as $180 billion by the end of 2028.
A regulatory shortcut opens up
On July 29, the SEC's Office of Structured Finance agreed that data-center securitizations matching this description fall outside the Exchange Act definition of an asset-backed security, since issuers still own and operate facilities that keep producing value after notes are repaid, unlike mortgages or receivables that disappear as borrowers pay them down.
That classification lets qualifying deals stop voluntarily observing the federal rule requiring securitizers to retain 5% of the credit risk, according to Latham's explanation of the SEC view, though federal antifraud law and registration exemptions still apply.
Delayed grid connections, tenant concentration, and refinancing pressure near the five-year repayment point remain risks a single rating letter can compress out of view.
Source: CryptoSlate
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