REPORT: Morgan Stanley Weighs Hedging A Data Center Bet
Morgan Stanley has had early-stage talks with potential investors who could help it mitigate risk related to a portfolio of loans to data center-focused businesses, Bloomberg reported, citing an anonymous source.
The bank discussed using a so-called significant risk transfer, a type of securitization that transfers the credit risk of a portfolio or collection of assets to third-party investors, who are paid fees by the bank to take on that risk.
Morgan Stanley is looking into other ways to manage its credit risk on this portfolio and may ultimately not use the risk transfer, sources told Bloomberg.
The New York-based bank has been involved in financing the boom in the data center market.
In October, it arranged more than $27B of debt and approximately $2.5B in equity financing tied to the development of a Louisiana data center project planned by a Meta and Blue Owl Capital JV.
Some industry watchers see the project, which used a special purpose vehicle to secure financing, as a red flag, signifying the companies behind these multibillion-dollar developments don't want the debt on their balance sheets because they don't want credit ratings agencies to see how much they are in the hole.
Concerns continue to rise that artificial intelligence is a bubble. Critics point to the billions of dollars borrowed and spent and the possibility that Wall Street is drastically overvaluing AI-related stocks as signs that trouble is on the horizon.
Leaders of major data center real estate firms have shrugged off these concerns, and top tech companies have met these fears largely by speeding up their spending. But within just the last week, one tech CEO and a ratings agency have sounded the alarm around rising costs and increasing risks.
Morgan Stanley analysts estimated that global spending on data centers will reach almost $3T between now and 2028.
Global sales of significant risk transfers are expected to expand by an average of 11% annually over the next two years, according to a June Bloomberg Intelligence survey.
