Data-center debt risks are rising, there’s uncertainty over what the properties are worth and returns are falling, according to Wellington Management. Spreads on loans to fund data-center construction have fallen to about two percentage points over benchmark rates, and the deals also have more leverage. Wellington still sees a place for some data-center credit in client portfolios, and looks closely at factors such as access to power and credit worthiness of the lessee before investing.
- Wellington Management is avoiding new data-center debt deals due to concerns over property valuation, rising leverage, and declining returns.
- The firm cites uncertainty in replacement value and the risk-reward profile as key reasons for passing on these investments, despite ongoing AI infrastructure build-outs.
- Wellington still considers some data-center credit opportunities but emphasizes rigorous due diligence on factors like power access, lessee creditworthiness, and terminal property value.
Topics: Asset types, Risk default, Real assets, Credit counterparty risk
Tags: #datacenterdebt #wellingtonmanagement #propertyvalue #artificialintelligence #leveragedloans #creditrisk #realestate #aiinfrastructure #lesseecreditworthiness