Nvidia has announced $500bn of AI infrastructure financing, assembled with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR. The goal is to pool capital for AI labs, enterprises and cloud providers so they can access compute hardware without putting the cost on their own balance sheets.
What was asked, and what came back
The announcement, made late last week, follows a quieter regulatory event a fortnight earlier. On 23 July, the law firm Latham & Watkins asked the Securities and Exchange Commission a narrow but consequential question: do data centre securitisations fall outside the Exchange Act definition of an asset-backed security? Six days later, Kayla Roberts, who chairs the SEC's Office of Structured Finance, answered. The staff agreed with Latham's view.
Why the definition matters
That answer matters because the definition of asset-backed security carries the risk retention rules written into Dodd-Frank after the 2008 financial crisis. Those rules require a deal sponsor to keep some risk on its own books. If data centre securitisations are not asset-backed securities, those requirements disappear.
The argument Latham made
The argument Latham made turns on a phrase. An asset-backed security rests on a self-liquidating financial asset. Since 1992, the SEC has read that as one converting into cash within a finite period. A mortgage qualifies, because repayment extinguishes it. Latham argued that a data centre does not. The facilities are tangible and physical, they endure beyond the life of the securities, and they may appreciate. When the notes are repaid, the issuer still owns the building.
The firm contrasted this with a single-asset commercial mortgage deal, where the issuer holds only the loan and is left with nothing once the loan is repaid. On that comparison, the reasoning holds together, and the SEC staff accepted it.
Latham has worked on data centre securitisation since the first deal in 2018. It told the SEC that the market has since passed $50bn in cumulative debt issuance. It also described how the market has behaved. Participants complied with the asset-backed rules throughout, the letter says, out of an abundance of caution rather than because the definition required it.
What the letter covers
The letter sets out which assets are securitised. It covers buildings and data halls, electrical and backup power systems, cooling, network connectivity, physical security, land, and the contracts needed to run the facilities. It does not mention chips or graphics processors. That distinction may become important if the market moves beyond buildings towards financing hardware itself.
The letter also describes the shape of these deals. Loan-to-value tops out at 70% of appraised value. Notes carry an anticipated repayment date of around five years. Final maturity runs 25 to 30 years. Nearly all use a master trust, the letter says. That structure lets sponsors issue further securities later, add data centres, and in some cases dispose of or substitute assets. Investors generally have no recourse to the sponsor or the operator, with the usual exceptions for fraud, wilful misconduct and gross negligence in managing the sites.
What the letter says about itself
The SEC response sets its own limits. It reflects the views of the staff of the Division of Corporation Finance, not the Commission. The Commission has neither approved nor disapproved its content. It is not a rule or a regulation. It has no legal force or effect. The staff add that their views rest on the representations in Latham's letter, and that any different facts or conditions might require the Division to reach a different conclusion.
Lawyers see a green light
Lawyers immediately read the letter as a green light. Orion Mountainspring, a securitisation lawyer at Orrick, said the response gives sponsors something specific: the chance to push down the equity required in a deal over time. He called it good news for them. B.K. Lee at Alston & Bird expects structures that are more flexible and capital-efficient, and more deals now that the guidance exists in writing. Seth Messner of Katten Muchin Rosenman said Latham had asked the SEC to put these deals outside the risk retention rules, and the SEC basically agreed.
Messner was more cautious on Nvidia. It is not clear whether its agreements are designed for securitisation, he said, only that the guidance sounds applicable if they are. Katten's data centre partners placed the rules in context. They date from after the 2008 crisis, when securitisations of poorly underwritten residential mortgages set the crisis off. The SEC and multiple ratings agencies declined to comment.
The rise of data centre securitisation
The market itself has grown quickly. The first data centre securitisation came in 2018. Since then, cumulative debt issuance has exceeded $50bn, according to Latham. Structured as master trusts, most deals allow sponsors to add assets over time, issue additional notes, and manage the portfolio more actively than a traditional mortgage securitisation. The stable cash flows come from leases to tenants who need to keep servers running. Those tenants are often large technology companies or cloud providers. The physical assets - buildings, power systems, cooling, connectivity - are not consumed when used. That is the core argument for treating them differently from the financial assets that gave rise to the post-crisis rules.
Nvidia's position
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Source:TNW | Nvidia News