DoubleLine Briefing: Investing in Data Center Asset-Backed Securities

Rhea-AI Summary

DoubleLine's ABS team has published a research paper highlighting investment opportunities in data center Asset-Backed Securities (ABS). The analysis reveals high-yielding prospects with modest risk in this sector, which supports critical technologies from AI to social media. The data center ABS market is experiencing significant growth, with expected issuance of $8 billion in 2024 and potential market size of $50 billion by 2027, up from $25 billion in 2024. The research suggests that subordinate and mezzanine tranches currently offer the most attractive risk-adjusted returns, benefiting from industry dynamics and a stable client base.

Positive

• Market expected to double from $25B to $50B by 2027
• Record issuance of $8B expected in 2024
• Subordinate tranches show strong resilience to stress cases
• Stable revenue stream due to sticky client base

Negative

• None.

TAMPA, Fla., Oct. 29, 2024 /PRNewswire/ -- In a new research paper, Stephan Diaz Ellinghaus, a Specialist on DoubleLine's Asset-Backed Securities (ABS) team, and Client Portfolio Manager Phil Gioia, CFA, find in data center ABS "high-yielding investment opportunities with modest risk."

The paper, "Securitizing the Digital Present & Future: Investing in Data Center Asset-Backed Securities (ABS)," can be accessed here: https://doubleline.com/wp-content/uploads/Securitizing-the-Digital-Present-and-Future_October-2024.pdf 

Data centers provide critical infrastructure, Messrs. Diaz and Gioia write, "to support the technologies that are now critical to people's everyday lives." These include emerging technologies such as machine learning, virtual reality, augmented reality and artificial intelligence as well as established ones, for example, email, messenger, streaming and social media.

Securitization, the authors note, is a rapidly growing avenue for the financing of data center assets. Primary-market issuance is "on track to hit record issuance in 2024, with more than $8 billion expected. The total data center ABS market outstanding could reach $50 billion by 2027, up from $25 billion in 2024."

DoubleLine, they write, is finding compelling opportunities in data center ABS throughout the capital structure. Subordinate and mezzanine tranches at present "offer the most attractive risk-adjusted return profiles. Like the senior tranches, the subordinate tranches are generally resilient to stress cases and benefit from the same industry dynamics and sticky client base and have more attractive spread and yield."

About the DoubleLine Asset-Backed Investment Team

The Asset-Backed Securities Investment team manages $5.2 billion in ABS investments as of the close of the third quarter 2024. Its seven members have worked together since 2013 and, among other professionals, call upon the additional support of 60 corporate and structured-products analysts and 21 risk analysts at DoubleLine. DoubleLine enjoys captive sourcing channels including securitizations of financings of data centers and other telecommunications infrastructure. The team has extensive experience in public and private ABS markets across the risk spectrum.

About DoubleLine

DoubleLine Capital LP is an investment adviser registered under the Investment Advisers Act of 1940. DoubleLine's offices can be reached by telephone at (813) 791-7333 or by email at info@doubleline.com. Media can reach DoubleLine by email at media@doubleline.com. DoubleLine^® is a registered trademark of DoubleLine Capital LP.

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SOURCE DoubleLine

FAQ

What is the projected size of the data center ABS market by 2027?

The data center ABS market is projected to reach $50 billion by 2027, growing from $25 billion in 2024.

How much data center ABS issuance is expected in 2024?

Data center ABS issuance is expected to reach a record of more than $8 billion in 2024.

Which tranches offer the best risk-adjusted returns in data center ABS according to DoubleLine?

According to DoubleLine's research, subordinate and mezzanine tranches currently offer the most attractive risk-adjusted return profiles.

What technologies are supported by data center infrastructure?

Data centers support technologies including machine learning, virtual reality, augmented reality, artificial intelligence, email, messenger, streaming, and social media.