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Data center development is booming—driven by AI and other high-throughput workloads. But beyond the physical buildout, a new product is emerging that might enhance the sector's value proposition: SLA insurance.
The capital intensity of data center projects attracts institutional investors. One common vehicle is asset-backed securitization, where data center leases and their associated cash flows are pooled into tradeable bonds, offering predictable returns. Another is commercial mortgage-backed securities (CMBS), which bundle loans that data center properties secure, generating returns from aggregated mortgage repayments. These instruments thrive on stability. Long-term leases with creditworthy tenants, standardized contract terms, and sustained demand for digital infrastructure make data centers attractive assets in secondary markets.
However, investors remain cautious about operational risks—especially those tied to service level agreements (SLAs). Complex arrangements to build and operate data center campuses couldexpose operators to steep service credits, rent abatement, or even termination rights if performance obligations are not met. These contingencies may threaten income flow and, by extension, the value of securitized instruments.
Drawing inspiration from M&A rep and warranty insurance — a way to guarantee the income-producing contracts and other assets that sellers promise — SLA insurance seeks to offer a similar safeguard for data center investors and operators. The policy pays out in the event of an SLA breach to mitigate downtime risk, strengthen contract enforceability, and enhance the credit profile of the underlying assets. The mere availability of SLA coverage may improve financing terms, potentially making it easier to raise capital.
As SLA insurance gains traction, it might become a standard feature in digital infrastructure transactions. By de-risking operational performance, it could support more aggressive growth strategies, broader investor participation, and deeper liquidity in the data center financing ecosystem. As such, SLA insurance may become a cornerstone of how digital infrastructure is financed, protected, and scaled.
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