Flexential has raised $2.1 billion to accelerate its growth strategy, and will use the money to deploy highly-sustainable data centers and enter new markets, the company said this week.
The financing allows Flexential to expand its infrastructure to keep pace with the rapid growth of its customer IT needs, and align its data center design with the growing push for sustainable operations. About $1.6 billion of the funding is through a green bond that includes stringent standards for efficiency in the use of energy and water in new data centers.
As it grows beyond its roots as a regional provider, Flexential has built a national footprint and global connectivity, with 38 data centers and more than 3 million square feet capacity across 19 markets.
Flexential said the funding represents the data center industry’s largest use yet of asset-backed securitization (ABS) tied to sustainable operations, and will help the company reduce its lending costs while improving its credit profile. Flexential will use the money to deploy data center capacity to meet demand in new and existing markets.
“The number of industry firsts in this transaction are a reflection of how we transparently and sustainably approach growth,” said Chris Downie, the CEO of Flexential. “We will leverage the capital generated by this transaction to deliver on our promise to support our customers’ evolving hybrid IT requirements. This inflection point is a result of considerable effort and tenacity from our employee base, along with the support from our investment partners and the entire Flexential ecosystem.”
Asset-Backed Fundings Unlock Growth Capital
The Flexential deal highlights several trends we have been tracking this year at DCF:
- Strong growth by companies serving regional data center markets as well as major data hubs.
- The continued use of asset-backed financing, allowing developers to use leasing success to fund new capacity. These secured notes allow companies to borrow funds at a lower rate using pools of assets and cash flow as collateral.
- Investor confidence in offering ABS funding backed by multi-tenant colocation facilities, and not just properties leased to hyperscale customers.
- The rise of sustainable finance in the data center sector, with growing use of green bonds and sustainability linked loans.
The new funding comes amid a flurry of mega-deals in the data center industry, including three M&A deals valued at more than $10 billion thus far in 2021. In an interview with DCF earlier this year, Downie noted the heavy investment in the data center industry by large financial players like infrastructure funds, sovereign wealth funds and marquee Wall Street firms offering low-cost capital.
“We’re certainly thinking about getting access to that capital,” said Downie said in February.
The new loans deliver on that goal. Flexential is among the data center developers building platforms to help companies manage a business world being reshaped by digital technologies., a process that has been accelerated by the pandemic. The company has built a portfolio of services and markets to help enterprise customers sort out a complex IT landscape, with a focus on hybrid deployments that can span cloud, colocation and on-premises infrastructure.
Sustainable Framework Guides Deployments
The new financing is notable for its focus on sustainability. Sustainable finance is a new frontier in addressing climate change, bringing accountability into the business of how companies fund their operations. That’s why DCF made it one of our Eight Trends That Will Shape the Data Center Industry in 2021.
Flexential issued the green notes under its new Green Finance Framework, which emphasizes low climate impact in new data centers, and investment in legacy data centers to improve their efficiency. Any new data center construction funded through the offering must have a Power Usage Effectiveness (PUE) of 1.4 or below, as well as zero water usage in cooling to be included under the framework. Flexential will be reporting on the performance of its green assets on an ongoing basis.
“With these new targets, Flexential is setting a new standard in efficiency and sustainability across the most material environmental issues for the industry,” said Dan Shurey, director, sustainable finance, Americas at ING, which acted as the Sole Sustainability Coordinator for the transaction. “By linking sustainability targets with a growth strategy, this financing demonstrates Flexential’s commitment to both their clients and the environment.”
“Our sustainability strategy focuses on where we can make the most impact by ensuring the entire lifecycle of Flexential’s facilities are designed, built and maintained with sustainability in mind,” said Garth Williams, chief financial officer, Flexential. “We view these commitments as essential to maintaining our long-term competitive advantage in the marketplace.”
Flexential was formed through the 2017 merger of Peak 10 and ViaWest to create a national network, and is backed by private equity firm GI Partners, an experienced investor in the data center industry. Peak 10 targeted second-tier markets in the Southeast, while ViaWest built a similar network in the Western U.S. The combined companies rebranded in 2018, with a focus on “the power of people in a technical world.”
Bigger Buildings, Bigger Markets
In recent years Flexential has begun to invest in larger data centers to support a strategic shift into the market for wholesale data center space, in which a tenant leases a finished suite of “turn-key” raised-floor space. Those tend to be larger deals than seen in retail colocation, Flexential’s historic focus, in which tenants buy smaller amounts of space by the cabinet or cage.
The new loan will help support those larger ambitions. A wholly owned subsidiary of Flexential issued $1.6 billion green ABS notes as part of a debut $2.1 billion entrance into the U.S. ABS market. Almost 90% of the notes were rated investment grade by Kroll Bond Rating Agency, including:
- $1.6 billion of term notes and $100 million of variable funding notes rated investment grade at A-
- $175 million of term notes rated investment grade at BBB
- $225 million of term notes rated BB, the largest non-investment grade issuance in the ABS market by a data center issuer
Financing was split into $1.6 billion of notes with a 5-year anticipated repayment date, and $390 million of notes with a 7-year anticipated repayment date. To confirm the sustainability impact, Flexential had an external review of its Green Finance Framework from leading ESG data provider Sustainalytics.