Morningstar DBRS Comments on the GBP 43.0 Million Draw On the Class A-1 Variable Funding Notes (VFN) Issued by Vantage Data Centers Jersey Borrower SPV Limited

On 19 December 2024, Barclays Bank PLC and SMBC London Branch, collectively the Class A-1 VFN Holders for Vantage Data Centers Jersey Borrower SPV Limited (the Issuer), funded a GBP 43.0 million Class A-1 VFN Increase in accordance with the Variable Funding Note Purchase Agreement.

DBRS Ratings Limited (Morningstar DBRS) does not rate the Class A-1 VFN, but reviewed the credit rating impact of such Class A-1 VFN Increase and concluded that a GBP 43.0 million draw does not affect its current credit rating or trend on the Class A-2 notes. Morningstar DBRS' credit rating on the Class A-2 notes, which have an outstanding balance of GBP 600.0 million, remains unchanged since issuance at A (low) (sf). The trend on the Class A-2 notes is Stable.

The Class A-1 VFN, which have a maximum note principal amount of GBP 100.0 million, rank senior to the Class A-2 notes prior to the delivery of an enforcement notice in terms of interest, fees, and principal. On the closing date, the Class A-1 notes were issued alongside the Class A-2 notes but were undrawn and retained by the Class A-1 VFN Holders until the GBP 43.0 draw that took place on 19 December 2024, which leaves GBP 57.0 million undrawn. Draws by the Issuer on the Class A-1 VFN are subject to the satisfaction of certain conditions as laid out in the transaction documents, including, but not limited to, a Rating Agency Confirmation being obtained in connection with the request to draw on the Class A-1 VFN, the debt service coverage ratio (DSCR) not being lower than 1.6x after giving effect to the drawing on the Class A-1 VFN, and annualised adjusted net operating income (AANOI) leverage not exceeding 10:1 after giving effect to such drawing. Post-enforcement Class A-1 VFN and Class A-2 notes rank pari passu.

The transaction is collateralised by the Issuer's leasehold and fee-simple interests in two data centres (CWL 11 and CWL 13). The data centres are in close proximity with one another just outside of Newport, Wales, and accounted for 111,828 kilowatts (kW) in total leased capacity as of end-2023. CWL 11 was repurposed into a data centre in 2010 and is held leasehold under a number of leases on a phased basis with the lessor being the Welsh Ministers for a remaining lease term of approximately 110 years. CWL 13, which is held freehold, was constructed in 2022 as a purpose-built data centre for a single hyperscaler.

The collateral accounts for 112,793 kW in leased capacity as of 31 October 2024. 96,127 kW of this capacity is live and the remaining 16,666 kW is ramp capacity that is expected to come online in November 2024 through August 2025. The tenancy at CWL 11 comprises 65 unique tenants, including retail and wholesale clients as well as two hyperscalers, one of which is the single tenant at CWL 13. The two hyperscalers account for 90.3% of total leased capacity. The larger contributor of the two is the main UK subsidiary of its AAA-rated parent entity and the single tenant at CWL 13, and it accounts for 71.6% of total leased capacity across CWL 11 and CWL 13. The second biggest tenant is the main UK subsidiary of its BBB-rated parent entity and accounts for 18.6% of total leased capacity.

The annualised adjusted base rent for the assets is GBP 98.4 million (up from GBP 89.9 million at issuance) and the weighted-average remaining lease term across the collateral is 8.3 years according to the November 2024 investor report. The loan-to-value (LTV) ratio stands at 53.9% as of November 2024, based on an appraised value of GBP 1.1 billion (unchanged since issuance), an outstanding Class A-2 note balance of GBP 600.0 million, and giving effect to the liquidity reserve. The debt service coverage ratio (DSCR) for the November 2024 interest payment date (IPD) is 1.91 times (x) and the three-month average DSCR, the metric used for trigger testing purposes, stands at 1.83x .The GBP 43.0 million draw on the VFN is expected to result in an increase in LTV and a decline in DSCR.

Morningstar DBRS maintained its net cash flow, cap rate, and discount rate assumptions from issuance and calculated the Morningstar DBRS Net Present Value (NPV) of the collateral based on these assumptions as of November 2024 at GBP 883.3 million. While credit negative, Morningstar DBRS found the GBP 43.0 million draw on the Class A-1 VFN does not result in a downgrade or trend change of its credit rating on the Class A-2 notes based on this NPV and a total debt obligation of GBP 643.0 million. Morningstar DBRS NPV was GBP 867.2 million at issuance.

The GBP 600.0 million Class A-2 term notes pay a fixed coupon of 6.172% and the Class A-1 VFN bear interest equal to the sterling overnight index average (Sonia) plus a margin of 2.75% per annum on an interest-only basis until their respective anticipated repayment dates (ARD). The Class A-2 ARD is in May 2029 and the Class A-1 VFN ARD is in May 2026 but can be extended to May 2028 with two one-year extension options subject to extension conditions being met. Any excess cash flow will be used to amortise the outstanding principal balances of the Class A-1 VFN and Class A-2 notes after their respective ARDs until the final maturity of the notes in May 2039. If there are still Class A-1 VFN outstanding on the Class A-2 ARD in May 2029, excess cash flow will go towards amortising the Class A-1 VFN first and then start amortising the Class A-2 notes once there are no Class A-1 VFN outstanding (in a pre-enforcement scenario) in accordance with the waterfall laid out in the transaction documents.

The notes pay interest on a monthly basis. The transaction is structured with a liquidity reserve that is sufficient to cover three months of interest payments on the Class A-1 and Class A-2 notes and Class A-1 VFN commitment fees.

The transaction is structured with a cash trap event, which occurs if the DSCR averaged over the trailing three months falls below 1.35x at any calculation date, a scheduled amortisation event (three-month average DSCR falling below 1.5x), and rapid amortisation events. A rapid amortisation event occurs if the three-month average DSCR falls below 1.2x or a breach of the tax deed of covenant (TDC Breach) occurs and is continuing and such TDC Breach is, in the opinion of the trustee, incapable of remedy or capable of remedy and remains unremedied for 30 days after the trustee has given written notice to the relevant party in breach of the Tax Deed of Covenant. There has been no cash trap event, scheduled amortisation event, or rapid amortisation event since issuance and all debt obligations have been met as of November 2024.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in British pound sterling unless otherwise noted.

For more information on this credit, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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