Banks seek to offload risk to avoid ‘choking’ on data centre debt

Lenders, including JPMorgan and MUFG, have spent more than six months distributing $38bn of construction debt tied to a data centre project leased to Oracle in Texas and Wisconsin, people familiar with the matter said.

Some banks sought to sell the loans at a discount to non-bank lenders to offload the Oracle-linked debt, the people said.

Banks have in recent weeks sounded out investors about structures including a variant of a significant risk transfer, or SRT. SRTs have been commonly used by European banks to reduce their capital requirements by offloading the risk of losses on part of a loan portfolio to investors such as private credit funds and insurers in exchange for a return. North American banks have begun using the instruments more in recent years. Rather than a classic SRT that may be tied to dozens of loans, banks are exploring slicing and dicing large and concentrated data centre loans to shift the riskiest portions off their books, for example.

Companies have already started expanding to new debt markets beyond bank lending by issuing private credit, asset-backed securities, commercial mortgage-backed securities and privately placed bonds. “There’s a nervousness . . . [Banks] are having to find more counterparties in order to achieve for what’s in the market and in the pipeline,” said Carlos Mendez, co-founder at Crayhill Capital.