Flexential, a retail colocation provider focused on the enterprise data center segment, which is backed by GI Partners, today announced the issuance of $2.1bn in securitized notes, via a data center securitization. Specifically, $1.6bn of this securitization financing has been issued under Flexential’s Green Finance Framework.
Flexential’s Green Finance Framework outlines energy and water efficiency requirements for the company’s data center infrastructure. For example, any data center development projects funded with proceeds from the offering must demonstrate a power usage effectiveness (PUE) of 1.4 or below, as well as zero water usage in the cooling process.
Overall, Flexential is securitizing only part of its total data center portfolio, which currently stands at 38 data centers, comprising 190 megawatts of critical load UPS capacity. Particularly, Flexential’s collateral for this securitization includes 23 multi-tenant enterprise data centers in the United States, comprising 82.6 megawatts of critical load power across 1.3 million sqft of data center space.
Flexential’s Securitization Financing – Overview
Flexential’s $2.1bn of securitized notes includes the following six classes:
| Class | Principal | Interest Rate | Repayment* | Rating |
| Series 2021-1, Class A-1 | $100m | Undrawn | 5 years | A- |
| Series 2021-1, Class A-2 | $1.225bn | 3.25% | 5 years | A- |
| Series 2021-1, Class B | $160m | 3.72% | 5 years | BBB |
| Series 2021-1, Class C | $225m | 6.93% | 5 years | BB- |
| Series 2021-2, Class A-2 | $375m | 3.80% | 7 years | A- |
| Series 2021-2, Class B | $15m | 4.26% | 7 years | BBB |
| Total / Average | $2.1bn | 3.8% | — | — |
Flexential’s classes of securitized notes achieved varying rating levels from Kroll Bond Rating Agency (KBRA):
- $1.6bn of term notes, $100 million variable funding notes rated investment grade at A-
- $175m of term notes rated investment grade at BBB
- $225m of term notes rated BB- (i.e., non-investment grade)
In aggregate, 89% of the notes were rated investment grade by Kroll Bond Rating Agency (KBRA).
Collateral of the Securitized Notes – Flexential Data Centers
Flexential’s $2.1bn asset-backed securitization is collateralized by 23 data centers. Of this total, 16 facilities are leased (71.6% of NOI) and 7 data centers are owned (28.4% of NOI). Below is a breakdown of the portfolio’s markets of operation by ownership structure:
- Leased: Portland, Denver, Las Vegas, Dallas, Nashville, Raleigh, Charlotte, Salt Lake City, Atlanta, Cincinnati, and Louisville
- Owned: Denver, Atlanta, Phoenix, Minneapolis, Tampa, Louisville, and Salt Lake City
Geographically, the portfolio’s facilities are located in 14 cities across 13 states. The portfolio’s largest state exposure is Colorado, where Flexential has three Denver-based facilities amounting to 23.5% of annualized revenue. Furthermore, Flexential’s largest single-asset exposure is its Portland – Hillsboro 2 data center, which generates 11.7% of annualized revenue.
Utilization
Flexential’s portfolio is 44.8% occupied by square footage. Occupancy rates at each data center range from 17% at Dallas – Plano, to 76% at Phoenix – Deer Valley.
Customers
Flexential’s securitization portfolio is currently occupied by 2.6k unique customers, with the portfolio’s largest customer accounting for 4.6% of revenue.
Overall, these data centers have a diverse tenancy base with their top 20 customers comprising only 23.7% of the portfolio’s aggregate annualized revenue. Of the top 20 customers by annualized revenue, 17 are customers with investment-grade credit characteristics.
Additionally, the top three industries by annualized revenue include software development and internet technology (21.9%), commercial (B2B) services (15.8%), and healthcare (9.5%).
Contracts
The weighted average remaining term of the in-place contracts is 1.8 years for the portfolio. While the weighted average remaining contract term including renewal options extends to 2.9 years.
Churn
Flexential’s monthly churn rate has averaged ~1.00% from 2018 through Q2 2021.
Financials
Flexential’s portfolio of 23 multi-tenant enterprise data centers generates annualized revenue of ~$383.5m and NOI of ~$193.5m (50.5% margin). Below is a breakdown of Flexential’s different sources of revenue:
- Colocation and Interconnection: 83% of annualized revenue
- Data Protection and Security: 9% of annualized revenue
- Cloud, Professional Services, and Managed Services: 8% of annualized revenue
Use of Proceeds – Flexential
Flexential intends to use the net proceeds from its securitization to refinance its existing debt and fund data center development projects that meet its Green Finance Framework.
Presently, Flexential’s outstanding debt includes instruments that have a much higher cost than the blended ~3.8% interest rate that the company will be paying via its securitized notes. For example, Flexential’s recent capital structure included a second-lien term loan at LIBOR + 7.25% and bonds at 11.25%.
Transaction Advisors – Flexential Securitization
Flexential’s $2.1bn green data center securitization involved the following financial institutions:
- Structuring Advisor, Joint Active Bookrunning Manager: Guggenheim Securities
- Joint Active Bookrunning Manager: J.P. Morgan, Deutsche Bank
- Co-Manager: Barclays, Citigroup, Jefferies, MUFG, Truist Securities
- Passive Bookrunner: ING (Sustainability Coordinator)
