Nvidia's push to mobilize $500 billion in third-party capital for AI data center construction is drawing support from recent Securities and Exchange Commission guidance that removes key risk requirements from some data center debt structures, according to CNBC. Last month, the SEC sided with law firm Latham Watkins, concluding that certain data center debt falls outside securitization rules that obligate investment sponsors to keep a portion of their deals' risk on their own books. The rules being sidestepped were established under Dodd-Frank, the regulatory framework enacted after the 2008 financial crisis, which was itself triggered by securitizations of poorly underwritten residential mortgages, according to CNBC.
"Folks contemplating this transaction will be quite happy about the response from the SEC," Orion Mountainspring, a securitization attorney with Orrick, said. "It gives them the opportunity over time to push down the required equity in the deal." The guidance carries the weight only of a staff opinion, not formal rule-making or legislation. Still, attorneys said it would open the door to more data center financing by lifting restrictions linked to a narrow category of asset-backed securities called Exchange Act ABS.
Lee, an asset-backed security attorney at Alston & Bird, said the guidance could produce data center financing structures that are more "flexible and capital-efficient." Lee added that sponsors and their advisers would gain greater latitude in how they arrange deals, and that the SEC-endorsed blueprint should attract more data center securitizations "now that we have written guidance from the SEC." The SEC's position is that data center securitizations fall outside risk retention requirements because data centers, unlike mortgages, do not qualify as "self-liquidating assets." Seth Messner with Katten Muchin Rosenman said the Latham request sought the SEC's acknowledgment that data center securitizations sit outside the Exchange Act's definition of asset-backed securities and thus escape Dodd-Frank's risk retention obligations. "The SEC basically agreed," Messner said. Messner acknowledged uncertainty about whether Nvidia's deals are structured with securitization as the goal, but said the SEC's guidance appears relevant to what Nvidia is doing.
Nvidia announced partnerships last week with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR through memorandums of understanding. The arrangements are intended to assemble capital pools to help AI labs, enterprises, and cloud providers access compute hardware without drawing on their own balance sheets. Nvidia characterized its chips as "revenue-generating assets" that are "productive," "long-lived," "fungible," and "flexible." The SEC and multiple ratings agencies declined to comment.
Extract — continue reading at the source.
