One facility supporting eligible obligations across several developments.
Facility Structuring
When Data Centers Need a Dedicated Power LC Facility
Power collateral can reach a level where ordinary LC capacity inside a corporate revolving facility becomes inefficient for a large development pipeline.
Dedicated power LC facilities give developers a separate pool of contingent bank credit for utility, transmission and interconnection obligations.
Revolver Capacity
LC Sublimits Can Consume Corporate Liquidity
Many corporate revolving credit agreements allow letters of credit to be issued under a defined sublimit. Outstanding LCs generally reduce remaining facility availability according to the credit agreement.
That structure works well for ordinary corporate requirements. A hyperscale development program can generate hundreds of millions or billions of dollars of utility collateral across multiple campuses.
At that scale, developers begin evaluating dedicated contingent facilities that preserve funded borrowing capacity for construction and operating requirements.
Market Development
Standalone Power LC Facilities Are Expanding
Global Trade Review reported that standalone LC facilities are expected to become more common as data center collateral requirements outgrow the revolving facilities that historically housed them.
Switch provides the clearest disclosed example. Its syndicated performance LC facility began at $2.6 billion and was expanded to $3.5 billion. The facility supports obligations connected to power procurement, generation and transmission across its development pipeline.
Yondr has also arranged a three-bank global LC facility supporting power requirements across projects in the United States and Europe.
Structure Selection
Choosing the Appropriate LC Facility
| Structure | Typical Use | Capacity Consideration |
|---|---|---|
| RCF LC Sublimit | Recurring corporate and project obligations. | Outstanding LCs generally consume revolver availability. |
| Bilateral LC Facility | Defined utility or project-specific collateral. | Dependent on one issuing bank's approved exposure. |
| Standalone LC Facility | Dedicated power and interconnection collateral. | Separates contingent exposure from funded borrowing capacity. |
| Syndicated LC Facility | Large multi-campus or multi-beneficiary programs. | Distributes exposure across several financial institutions. |
Syndication Solves Bank Concentration
A large utility collateral program can exceed the amount a single bank wants to hold against one developer. Syndication allows several lenders to share the exposure while designated issuing or fronting banks provide acceptable instruments to individual beneficiaries.
Facility Design
What a Dedicated Power LC Facility Can Include
A facility can be structured around an aggregate commitment with individual issuance requests made as new utility obligations arise. The documentation may include campus sublimits, beneficiary eligibility criteria, accordion capacity, issuer requirements, reimbursement mechanics and procedures for reducing outstanding utilization.
Utilities, transmission providers, generators and other approved counterparties.
Potential commitment increases as the development pipeline expands.
LCs designed around longer construction and energization periods.
Credit Review
Banks Underwrite the Developer Behind the LC
Dedicated LC capacity requires a full credit review. Banks assess consolidated financial statements, liquidity, leverage, sponsor capitalization, tenant contracts, development exposure, utility agreements and the applicant's ability to reimburse a drawing.
Facility size should also be supported by a detailed collateral schedule showing expected utilization by campus, beneficiary and posting date.
Evaluate a Dedicated Data Center Power LC Facility
Financely advises qualified developers on bilateral, standalone and syndicated LC structures for utility, interconnection and transmission collateral.