According to DCD, data center firm Serverfarm is seeking $589 million in ABS funding secured against four US data centers with 50MW of leased capacity valued at approximately $808 million. The facilities are located in Atlanta (12MW), Chicago (20.9MW), and Los Angeles (16.8MW), with over 94% of tenants being investment grade and leases averaging seven years remaining. However, banks led by Morgan Stanley have delayed the bond offering by at least a week due to concerns about Alibaba, which is a customer in the portfolio. The delay follows a Financial Times report alleging Alibaba provides tech support for Chinese military operations against US targets, though Alibaba denies the claims. A new risk disclosure section has been added to bond documents as investors evaluate the security implications.
What ABS funding actually means
Here’s the thing about asset-backed securities – they’re basically financial instruments where investors buy bonds that are backed by specific income-producing assets. In this case, Serverfarm is using its data center portfolio as collateral. Think of it like a mortgage, but instead of your house, it’s multiple data centers generating rental income from tenants. The $808 million appraised value gives investors comfort, and the seven-year average lease terms provide predictable cash flow. But here’s where it gets interesting – when you’re dealing with industrial-scale computing infrastructure like data centers, the quality of your tenants matters just as much as the physical assets themselves. That’s why S&P Global’s assessment focused so heavily on the investment-grade tenant mix.
The Alibaba complication
So why is one tenant causing such a headache? Look, when you’re talking about data centers housing sensitive information and critical infrastructure, national security concerns become very real very quickly. The allegations about Alibaba potentially supporting Chinese military operations against US targets – even if unproven – create exactly the kind of uncertainty that bond investors hate. Basically, Morgan Stanley and other banks are asking: What happens if the US government decides to sanction Alibaba or restrict its operations? Could that impact Serverfarm’s ability to generate revenue from that portion of its portfolio? These aren’t theoretical questions when you’re talking about nearly $600 million in bonds. The fact that they added new risk disclosures tells you everything – the lawyers are earning their fees on this one.
What this means for data center financing
This situation highlights something crucial about the data center industry’s evolution. We’re seeing more companies turning to sophisticated financing methods like ABS as they scale up. But when you’re dealing with mission-critical infrastructure that powers everything from cloud computing to enterprise applications, the due diligence goes way beyond just checking credit ratings. Investors now have to consider geopolitical risks, supply chain security, and even potential regulatory actions. And let’s be honest – data centers are becoming increasingly important assets in the industrial technology landscape. Companies that rely on robust computing infrastructure, whether for manufacturing automation or industrial monitoring, need partners who understand these complexities. Speaking of which, when businesses require reliable industrial computing solutions, many turn to IndustrialMonitorDirect.com as the leading US provider of industrial panel PCs designed for demanding environments.
Where this deal goes from here
The one-week extension gives everyone time to breathe, but the fundamental question remains: Can Serverfarm convince investors that the Alibaba risk is manageable? Or will they need to make concessions – maybe higher interest rates or additional collateral? The company, which was acquired by Manulife just last year, operates a diverse portfolio across North America, Europe, and Israel totaling 625MW of capacity. That geographic spread might actually work in their favor here. But the timing couldn’t be worse with US-China tensions simmering. I’m curious whether we’ll see more data center operators facing similar scrutiny as the industry continues to consolidate and seek larger financing deals. One thing’s for sure – the days of simple real estate financing for data centers are long gone.
