Data centers underpin Sabey’s latest $200m revenue note deal

Sabey Data Center Issuer, Series 2022-1, is preparing to issue approximately $250 million in revenue notes that will securitize real estate and tenant lease payments across six large-scale data center campuses.

Rental revenue relates to six data center campuses located in New York, Virginia and Washington, according to S&P Global Ratings. Series 2002-1 shares are collateralized with Series 2020-1, 2020-2 and 2021-1 Notes issued by the previous Sabey Data Center Issuer Trusts.

The current issue has no new properties added to the main trust, but the overall appraisal value has increased to approximately $2.0 billion from $1.5 billion since Series 2021-1. Increased build and lease capacity of existing data centers account for the higher valuation value, the rating agency said.

Guggenheim Securities is the sole structuring advisor and active book manager, while Midland Loan Services will service the notes.

S&P plans to assign ratings of “A+” to the $175 million A-2 Notes and “BBB” to the $75 million “B” Notes.

Sabey Data Center Issuer, 2022-1, has another important feature in common with previous transactions: Class A-2 tickets are pari passu to several other ticket classes from previous series, including:

2020-1 Class A-1 and Class A-2

2021-1 Class A-2

Class B notes in Transaction 2022-1 are subordinate to Class A notes, S&P said.

At a time when environmental, social and governance (ESG) risks are just as important as other elements of a securitization agreement’s collateral, S&P noted that data centers are more exposed to environmental risks than other types of property.

“Physical climate risk could impact not only the structure of the building, but also access to electricity,” the rating agency noted in a recent pre-sale report. In addition, a considerable level of resources are required to generate the energy needed to operate data centers, so properties are highly exposed to waste and pollution.

Data centers also have significant greenhouse gas emissions, due to the significant amounts of energy needed to provide lighting and air conditioning.

Among the highlights of the deal are Sabey Data Center Properties’ long operating history in the real estate and data center industry. In addition, the original lessees of the underlying leases have a high average credit quality — 69% of them have an investment grade rating of “BBB-”, or equivalent.

The collateral pool also has a low client turnover rate, held in place by the high cost of relocation.

The operation is not without drawbacks: the diversity of tenants is limited in the collateral pool. One tenant represents approximately 18% of leased turnkey capacity and 16% of total annualized adjusted base rent (AABR). The top five tenants represent half of the total guarantee pool AABR.

Michael J. Birnbaum