Securitizations of tech assets finding favour in Covid world

Securitizations of technology assets are proving popular with US investors in the Covid marketplace, according to a new Moody’s report based on interviews with “dozens” of structured finance issuers, arrangers and investors around the world.

In particular, securitizations of data centres, both as a constituent asset of CMBS transactions and corporate ABS deals, have caught the eye of buyers, say Moody’s analysts that helped compile the report.

Investors recognize that the market has changed and that some types of securitizations, such as CLOs and CMBS of hotels or leisure assets, might not be seen again for the foreseeable future. At the same time, however, rates remain very low, so capital has to look for a new home.

“People are saying, ‘what are the other things we can look at to fill in the gaps and give us some yield?’ There isn’t much else, so technology has become a big thing,” says Jody Shenn, a senior analyst in the dedicated research team.

Technology is less correlated to the progress and treatment of the pandemic than other types of exposure but also represents an asset class that was doing well before Covid 19 struck.

There are three types of data centre assets, explains senior CMBS analyst Neeraj Aruha: so-called telecom hotels, fully functioning turnkey data  centres and powered shells. The former includes massive data and internet hubs such as 60, Hudson Street in New York City, home to 295 different organizations and 204 carriers.

They are some of the most important assets of any kind in the world, and their importance has been underlined in triplicate by the Covid 19 crisis. Over the last few years, there has been an uptick in demand for exposure to securitization of these assets in CMBS deals, says Ahuja.

Securitization of powered shell assets, where the owner of the real estate only provides data centre building shells with access to power and fibrenetwork, has also proved popular in part because of the lower susceptibility to technological changes and significant tenant investment.

The third category - turnkey data centres, refer to the arrangement whereby, the real estate owner provides a fully operational data centre with redundant infrastructure and access to multiple internet service providers. These are more idiosyncratic, with often higher operational risk and higher capital base, so are a little trickier to value.

But demand for all three has become more sustained since the crisis began, say the Moody’s analysts. Buyers are also looking at more off the run deals to get exposure, which is a new departure, they add.

Overall, Moody’s sees enormous capacity and scope for growth in the tech securitization space.

“There is strong demand for data and that demand continues to rapidly grow. We’re all on line on our devices all the time consuming content and data.  Given the continuing growth in demand for data and connectivity we expect to see more securitizations in the communication infrastructure space, such as wireless towers, distribution network systems (DNS) and data centres,” summarises Giyora Eiger, senior credit officer in the corporate ABS team.

The report also notes, among other observations, that the ESG class has held up well in the teeth of the Covid 19 crisis, especially in Europe. In fact, global issuance of sustainable bonds totalled $99.9bn in Q2 2020 - a new record and 65% higher than in the Q1. The analysts note that for every one firm that said other things are being prioritised currently, at least two said that ESG investment remains of interest to their firm.

The structured finance market in general  is considered to have demonstrated considerable robustness in the face of what has been a savage and entirely unexpected downturn.

“The global economy is weakened, of course, but, in general, structured finance deals have held up well. That’s not to say it can’t all change in a few weeks,” concludes Jody Shenn.

Simon Boughey