Sample credit memo: a data center loan

At Thorofare I screened loans in this format: a short case for whether a deal was worth pursuing, with the loan metrics up top, sources and uses, and every weakness paired with a mitigant. Here is the same format applied to the kind of deal I want to work on next.

The request

We are previewing an opportunity to lend $322 million (70% loan-to-cost, $8.05 million per MW, ~19% stabilized debt yield) for the construction of a 40 MW data center on part of a former bitcoin mining site in West Texas. On delivery, the building is leased for 15 years to an AI cloud provider, and an investment-grade technology company guarantees about half of the rent.

The business plan

• The sponsor, a bitcoin miner, already holds the land and a 60 MW grid connection, which removes the longest lead-time item in data center development.
• It will build a 40 MW (critical IT) facility over 18 months at a total cost of $460 million, or $11.5 million per MW.
• The tenant signs a 15-year lease at about $150,000 per MW per month, $72 million a year, starting on delivery.
• The guarantor covers 50% of rent, $36 million a year, for the first 10 years, effective when the lease starts.

Strengths

• Power is already secured. A 60 MW connection in hand removes the grid queue, the risk that sinks most data center timelines.
• Long lease, short loan. A 15-year lease sits under a loan that matures in five years at most, so the lease outlasts the debt.
• The backstop covers the debt on its own. The guaranteed $36 million a year covers interest 1.4 times, before counting the rest of the rent.
• Real equity first. The sponsor puts in $138 million, 30% of cost, ahead of the loan.

Weaknesses and mitigants

• The empty building is worth far less than the loan. Valued as powered land and shell at about $3 million per MW, the site is worth roughly $120 million against a $322 million loan, an as-dark LTV near 270%.
  Mitigant: the loan is underwritten to the lease and the backstop, not to the real estate. That makes the next two items the real diligence. See Underwriting the empty building.
• The tenant is unrated. AI cloud providers are young companies with concentrated customers.
  Mitigant: the guarantee covers half the rent and more than the debt service. Review exactly what triggers it, how it is capped, and when it ends.
• The backstop is not live during construction. It starts when the lease starts, so a late building leaves the loan exposed.
  Mitigant: completion and carry guaranties from the sponsor until the lease starts, an 18-month interest reserve, and a review of equipment lead times (transformers, switchgear) before closing.
• Power cost and reliability sit with someone.
  Mitigant: confirm who pays for power under the lease and how the sponsor hedges it. See how a power hedge settles.

Proposed terms

What I would need before credit committee

• The lease and the guarantee: triggers, caps, assignment rights and termination options
• The interconnection agreement and a firm energization date
• The construction contract, budget review and equipment delivery schedule
• Tenant and guarantor financials, and the sponsor’s track record building, not just mining
• The power contract and hedge, and who bears the cost in each hour

This page pairs with What a Google backstop buys, which looks at how real deals of this shape were financed.