SEC Staff Agrees Data Center Securitizations Are Not Asset-Backed Securities

The reasoning turns on what the issuer still owns after the notes are repaid, which puts the structure closer to a real estate investment company than to a securitization.

August 13, 2026

Data center securitizations are not asset-backed securities under federal law, the SEC’s Division of Corporation Finance told Latham & Watkins on July 29, settling a definitional question that has trailed the digital infrastructure debt market since its first deal in 2018.

The staff concurred with the firm’s view that fixed-income and other securities issued in these transactions fall outside Section 3(a)(79) of the Securities Exchange Act, which defines an asset-backed security as one collateralized by a self-liquidating financial asset — a loan, a lease, a mortgage or a receivable — that pays holders primarily from that asset’s cash flow.

The market had assumed otherwise, largely on the strength of a single word. Section 3(a)(79) names a lease among its examples, and data center deals do include customer contracts and sometimes leases. Latham told the staff that participants had been complying with Exchange Act ABS requirements out of an abundance of caution even though leases make up only a portion of the collateral. Cumulative issuance in the market has passed $50 billion.

What the issuer keeps

The argument the staff accepted rests on what remains once the notes are gone. In a typical deal, a special-purpose issuer owns or holds rights to facilities through asset entities, along with the contracts needed to operate them:

• buildings and data halls, land, and physical security systems;
• electrical and backup power, cooling, and network connectivity;
• service contracts, colocation agreements and insurance policies.

Payments to noteholders come from operating cash flow — tenant and customer revenue net of taxes, insurance, electricity, repairs and security services. Investors generally have no recourse to the sponsor or operator beyond narrow indemnities for fraud, willful misconduct and gross negligence.

Physical plant does not convert into cash within a finite period, the Commission’s working test for self-liquidating since 1992, and may instead appreciate as operations succeed and land values rise. When the notes are repaid, the issuer still owns and operates the facilities. Nor do payments depend primarily on financial-asset cash flow, because what reaches investors turns as much on how effectively the manager suppresses operating expense.

Closer to a REIT than a securitization

The framing Latham put to the staff is one allocators will recognize. The investment opportunity in a data center securitization, the firm argued, most resembles an investment in a real estate investment company, which likewise acquires, owns, finances, manages, leases and develops property and raises capital to do it. The difference is structural isolation: the securitization ring-fences its assets from the operator’s other activities, while a REIT investor is exposed to the entire balance sheet.

The comparison runs the other way for mortgage paper. In a single-asset single-borrower CMBS on a data center, the issuer holds only the mortgage loan, the borrower owns and operates the building, and the issuer holds nothing once the loan is repaid. That is unmistakably an Exchange Act ABS. A data center securitization puts the facility inside the collateral, which leaves its issuer in the borrower’s position rather than the CMBS issuer’s. Mortgage-backed paper on the same buildings therefore stays inside the rules.

Retention the deals already carried

Among the requirements now off the table is credit risk retention, which obliges securitizers to hold an economic interest in the credit risk they package. The structures were already well past that threshold. Deals are generally sized to a loan-to-value ratio no higher than 70 percent of appraised value at issuance, leaving 30 percent as equity in the asset entity, and nearly all use a master trust that admits future issuances, additions of facilities and, in some cases, substitutions. Notes typically carry an anticipated repayment date around five years against a final maturity of 25 to 30.

The relief is also narrower than it appears. The staff conditioned its view on the representations in the request, and different facts could support a different conclusion. The letter carries no legal force, alters no law and creates no new obligations, and the Commission neither approved nor disapproved it.