Nvidia announced $500bn of AI infrastructure financing last week, alongside Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR.
A fortnight earlier, the Securities and Exchange Commission staff answered a question. It concerned how deals of that general type are regulated. The exchange took six days.
What was asked, and what came back
Latham & Watkins wrote to the SEC on 23 July. It asked the staff a narrow question. Do data centre securitisations fall outside the Exchange Act definition of an asset-backed security?
The definition matters. It carries the risk retention rules written into Dodd-Frank after the 2008 crisis. Those rules require a deal sponsor to keep some risk on its own books.
Kayla Roberts, who chairs the SEC’s Office of Structured Finance, replied on 29 July. The staff agreed with Latham’s view.
The argument Latham made
The letter turns on a phrase. An asset-backed security rests on a self-liquidating financial asset. Since 1992 the SEC has read that as one converting into cash within a finite period.
A mortgage qualifies. Repayment extinguishes it.
Latham argued a data centre does not. The facilities are tangible and physical, they endure beyond the life of the securities, and they may appreciate. When the notes are repaid, the issuer still owns the building.
The firm set that against a single-asset commercial mortgage deal. There the issuer holds only the loan, and ends up with nothing once it is repaid. On that comparison the reasoning holds together, and the staff accepted it.
Latham has worked on data centre securitisation since the first deal in 2018. It told the SEC the market has since passed $50bn in cumulative debt issuance.
It also described how the market had behaved. Participants complied with the asset-backed rules throughout, the letter says, “out of an abundance of caution” rather than because the definition required it.
What the letter covers
The letter describes the securitised assets. Buildings and data halls, electrical and backup power systems, cooling, network connectivity. Then physical security, land, and the contracts needed to run the facilities.
It does not mention chips or graphics processors.
It also sets out the shape of these deals. Loan-to-value tops out at 70% of appraised value. Notes carry an anticipated repayment date of around five years. Final maturity runs 25 to 30 years.
Nearly all use a master trust, the letter says. That structure lets sponsors issue further securities later, add data centres, and in some cases dispose of or substitute assets.
Investors generally have no recourse to the sponsor or the operator. The letter records the usual exceptions as fraud, wilful misconduct and gross negligence in managing the sites.
What the letter says about itself
The SEC response sets its own limits, in its own words.
It reflects the views of the staff of the Division of Corporation Finance, not the Commission. The Commission has “neither approved nor disapproved its content”. It is not a rule or a regulation. It has “no legal force or effect”.
The staff add that their views rest on the representations in Latham’s letter, and that “any different facts or conditions might require the Division to reach a different conclusion”.
What the lawyers say it means
Orion Mountainspring, a securitisation lawyer at Orrick, told CNBC the response gives sponsors something specific. It is the chance to push down the equity required in a deal over time. He called it good news for them.
B.K. Lee at Alston & Bird expects structures that are more flexible and capital-efficient, and more deals now the guidance exists in writing.
Seth Messner of Katten Muchin Rosenman told Tobias Burns at CNBC what Latham had sought. It asked the SEC to put these deals outside the risk retention rules. The SEC basically agreed, he said.
Messner was more cautious on Nvidia. It is not clear whether its agreements are designed for securitisation, he said, only that the guidance sounds applicable if they are.
Katten’s data centre partners placed the rules in context. They date from after the 2008 crisis. Securitisations of poorly underwritten residential mortgages set that crisis off.
The SEC and multiple ratings agencies declined to comment to CNBC.
Nvidia’s position, and its release cycle
Nvidia has not said whether the platforms it built with six finance giants will securitise anything. It agreed those arrangements through memoranda of understanding.
Their stated purpose is to pool capital so AI labs, enterprises and cloud providers can reach compute hardware without drawing on their own balance sheets.
It has described its hardware as a revenue-generating asset, and reached for four adjectives: productive, long-lived, fungible and flexible. Quartz noted the wording.
Its release cadence is a matter of record. Nvidia has grown by moving large customers to its newest hardware close to annually. At Computex in 2024 it shortened its release cycle from two years to one.
Phoebe Liu framed the resulting question for The Information. Nvidia wants customers buying as many next-generation chips as possible. It also wants them to know their old chips will stay valuable. She asks whether it can manage both.
The desk reported yesterday that Nvidia is backing the buildings behind an OpenAI data centre in Ohio, to the value of $105bn.
Jeff Gundlach has said turning compute into an asset class looks like a market top.
What would settle it
Four things, all checkable.
Whether Nvidia discloses that any of the $500bn involves securitisation. Whether the staff position ever reaches hardware rather than facilities. The letter does not address that either way.
Whether ratings agencies treat compute-linked collateral as they treat buildings. And where the risk finally sits. Five tech giants already hold $1.65tn off balance sheet, and lenders already issue GPU-backed debt.