Data Centers: A Comparison of ABS and CMBS Structures

Flashcards summarizing key vocabulary and concepts from a structured finance research report comparing ABS and CMBS structures for data center financing.

Asset-Backed Security (ABS) / Commercial Mortgage-Backed Security (CMBS)

A structured finance capital market instrument used by data center owners to fund their portfolios, leveraging asset-backed securities and commercial mortgage-backed securities structures.

Master Trust

A legal structure where the issuing entity holds an ownership interest in the data centers along with first liens, permitting more flexibility with respect to upsizing a transaction, issuing follow-on notes, adding collateral, and incorporating a variable funding note (VFN) mechanism.

Real Estate Mortgage Investment Conduit (REMIC)

A legal structure where the issuing entity holds the first lien only, allowing operators to retain greater control of operating cash flow and may allow for the incurrence of additional subordinate financing and feature more extensive credit tranching for more granular risk distribution.

Anticipated Repayment Date (ARD)

An expected refinancing or maturity date for the notes in ABS transactions. If not paid off by then, a full cash sweep, rapid amortization, and penalty interest rates are triggered to incentivize refinancing or achieve full repayment.

Variable Funding Note (VFN)

Acts like a revolving credit line embedded inside the ABS structure, providing issuers just-in-time funding and investors a short-tenor floating-rate asset secured by the same collateral as the term bonds.

Cash Trap Trigger (CMBS)

A trigger defined at the loan level in CMBS data center deals, where a common example would be a loan debt yield falling below a defined threshold.

Cash Trap Trigger (ABS)

Triggers applied at the trust level in ABS data center transactions, including failure to repay by the ARD as well as debt service coverage ratio and loan-to-value breaches.

Controlling Class (CMBS)

The most subordinate class of notes in CMBS data center transactions, typically retained by the sponsor to satisfy risk retention requirements. Maintains significant rights in case of a default or a trigger event.

Controlling Class (ABS)

The most senior class in ABS transactions, which holds significant rights that can be exercised in case of a default or trigger event.

Sponsor (Borrower)

Bankruptcy-remote entity that grants a mortgage on one or more data center properties to a CMBS trust, which then issues bonds to investors in CMBS transactions.

Special-Purpose Vehicle (SPV)

Bankruptcy-remote issuer entity that the sponsor in an ABS transaction typically transfers a portfolio of data centers as well as the rights to their customer contracts into, which then issues ABS notes.