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This is slightly wonky, but consequential. I wrote about it previously for institutional clients when the SEC released the "no action" letter, but with Nvidia taking advantage of it, it's time for an update.
What Happened
- More than a month ago, the SEC ruled that certain data-center securitizations are not legally “asset-backed securities.”
- The reasoning is that the issuing vehicle owns operating data centers that survive repayment
- The original asset-backed securitization (ABS) regulations were specific to "self-liquidating financial assets" such as loans or receivables.
- That distinction removes several post-2008 protections.
- Sponsors can avoid various ABS requirements
- Retain 5 percent of the credit risk
- Most ABS disclosure obligations
- Sponsors can avoid various ABS requirements
- A new debt deal takes advantage of the absence of protections.
- There is immene appetite for new sources of debt financing.
- Nvidia has just announced partnerships with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR aimed at obtaining more than $500 billion of third-party capital for AI infrastructure.
- Lawyers told CNBC that the new guidance could apply to these financing platforms.
- Orthodox sources of debt are increasingly tapped out.
- The investment-grade market is saturated, requiring either new sources or new ratings approaches
What It Means
- This is legal hairsplitting.