KBRA Releases Data Center ABS Global Rating Methodology

KBRA releases its Data Center ABS Global Rating Methodology describing KBRA’s approach to rating data center asset-backed securitization (ABS) transactions.

The approach begins with evaluating the underlying collateral’s financial and operating performance. KBRA first estimates sustainable net cash flow (KNCF) for the properties securing the transaction. KNCF serves as the basis for KBRA's asset-liability scenario analyses.

These analyses are utilized to assess, under KBRA’s ratings stress scenarios, the collateral’s ability to generate sufficient proceeds, when applied to the transaction waterfall, to make contractual payments of interest and principal by the relevant legal final maturity date of the rated securities. The stresses include multiple rounds of tenant defaults, a lag period to find replacement tenants, and revenue haircuts applied to replacement tenants; periodic revenue haircuts regardless of defaults due to a combination of lease expirations, releasing losses, and market rental rate declines; and stressed terminal capitalization rates to calculate property residual value. The stresses applied vary by rating category with higher levels of stress applied to higher rating categories.

In addition, other factors may influence the final rating conclusion, including but are not limited to, considerations related to transaction parties, asset quality, market factors, transaction structure and legal review, and the amount of operational risk and operator dependencies presented by the transaction.

Click here to view the methodology.