This Is What It Takes to Get a Data Center Financed

Joe Weisenthal (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:22)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, you know, we've obviously been doing a lot about data centers, but one thing that's sort of becoming interesting is they just seem so complicated. There are so many different moving parts, and I don't mean, like, technically complicated, although that's part of it. But they really are this sort of weird thing where they're a high-tech thing. They have the most advanced chips, or at least some of them have the most advanced chips in the world. They're real estate plays, and we talk about securitization and so forth. And then they have to figure out all the stuff of how they're going to connect to the grid, and maybe they're going to build their own powerplanes inside the data center, et cetera. There's a lot of moving parts.

Tracy Alloway (0:56)

Yeah. There's a couple of things here. So number one, it does seem to be a complex space. And whenever I think about how some of these things are being financed, I get that. What's the meme with the guy standing in front of the board with all the papers and string connections? It all feels a little circular sometimes, that whole ecosystem. But the other thing is just the sheer scale of the financing requirement for doing this. So I was reading a Morgan Stanley report, I think it came out over the summer. They were forecasting 2.9 trillion of global data center spend through 2028 And just for context, total capex spending by all companies in the S&P 500 in 2024 was 950 billion.

Joe Weisenthal (1:39)

That's crazy. Yeah. And by the way- The numbers are mind boggling.

Tracy Alloway (1:42)

Well, the other big question is, if you actually stack that up against existing revenue from generative AI, existing revenue is like 16 billion, right? So there's a bit of a gap there that needs to be filled.

Joe Weisenthal (1:53)

Right. Completely correct. The other thing that strikes me is very interesting and tricky is you have these projects and put out the big capital outlay, capital commitments, etc. And then the timelines, like, oh, when do you get connected to the grid? When does that turbine for your InSight gas generator get actually get delivered? Maybe 2030, etc. So it feels like I get the impression you're dealing with very uncertain timelines. And so how you establish that in the language so everyone feels protected, like, what if you could ever get connected? What if anything could happen?

Tracy Alloway (2:23)

What are the expectations for when this actually starts to pay off?

Joe Weisenthal (2:26)

When does it pay off? What are the obligations of the tenant, etc? We don't really know. Anyway, I'm sure it's different. Number one, so many more questions. We're just scratching the surface.

Tracy Alloway (2:35)

Yeah, absolutely. And, you know, there have been some interesting things happening. So a lot of the activity has been done in the private market. But obviously, AI players and companies have a lot of different options. So they could go to securitized markets. And I think we've been seeing some CNBS and ABS deals there. Private credit, I mentioned private equity, bank lending, or they can go the public route into corporate bonds. And so I'm really curious how a lot of these players are choosing between those options.

Joe Weisenthal (3:03)

Well, I'm really excited to say we have the perfect guest, someone who is really at the intersection of sort of every one of the things that these data centers are also at the intersection. We're going to be speaking to Travis Wofford. He's a partner at the law firm Baker Botts. He is the chair of the corporate department based in Houston. He works on all of these things. He can tell us what's in the details of all these agreements. So Travis, thank you so much for coming on Odd Lots. Great to have you here in studio.

Travis Wofford (3:28)

Thanks for having me.

Joe Weisenthal (3:29)

Why don't you give us just a quick overview of what's your role at Baker Botts? What do you focus on? What do you call it, a practice area? Is that a legal term?

Travis Wofford (3:38)

Yeah. So I'm a deal lawyer. I help people build, buy, finance and sell projects and companies. So we take multidisciplinary teams and put them together in order to actually make people's dreams a reality is the way I like to explain it. The idea is somebody comes to us with a very complex project, and they need an integrated solution, legal solution to that problem. So you want to build a data center, you've got power, you need people that actually understand the air, the water, the interconnection with the fiber, the interconnection with power, the land, everything else, and then the finance layer on top of that, we provide a one stop shop for that.