Powering tomorrow: key considerations in data centre financing – Dentons
- Financing data centre infrastructure: Key challenges and innovations in data centre financing
- Demand, alternative capital, innovative structures and lifecycle financing
- Regulatory and operational complexities
Financing data centre infrastructure: key challenges and innovations in data centre financing
Financing data centre infrastructure presents a complex mix of regulatory, operational and structural challenges. This article explores the key trends, risks and innovations shaping the future of data centre financing in Australia.
Demand drivers and GPU-as-a-Service
The accelerating demand for data centres in Australia is being driven by the rapid growth of AI workloads and cloud-based services. In this evolving landscape, GPU-as-a-Service (GPUaaS) providers are emerging as a distinct and influential customer class, potentially rivalling hyperscalers in both scale and strategic importance. GPUaaS allow users to access and deploy graphics processing units in the cloud, rather than purchasing and maintaining them on-site. Their rise is reshaping tenant profiles within data centres and contributing to upward pressure on valuations. It is also introducing new financing complexities.
One of the core challenges for financiers lies in the fact that GPUaaS represents a relatively new and still-developing business model. It lacks the standardisation and familiarity that traditional lenders typically rely on, making banks more cautious when assessing the bankability of this model. By contrast (due to their scale and creditworthiness), hyperscalers offer more predictable returns and are easier for banks to assess from a credit perspective.
Bank appetite and alternative capital
Banks remain central to the Australian data centre financing market, especially for mature platforms with stable cash flows. Following a strong 2024, the pace of transactions in Australia over the first part of 2025 has steadied with the bank market recalibrating and entering a more strategic and selective phase, with lenders and developers focusing on tenant diversification, ESG alignment and energy integration. Alternative funding sources such as private capital, infrastructure funds and securitisation are also gaining traction.
As an example, venture funds and tech-focused infrastructure investors are more comfortable backing emerging technologies and unconventional business models than banks. Several of these who are active in the region are providing funding to support GPUaaS platforms. This type of funding is usually a tailored mix of equity and structured debt, with the financing approach varying based on the company’s maturity, risk profile and the specific nature of the investment. Export credit agencies may also support GPUaaS deals by providing guarantees or concessional financing, especially for cross-border projects with strategic value.
While securitisation is a well-established alternative source of funding for the US data centre market, it remains relatively underutilised in the European and Australian data centre markets. However, the projected growth of these markets is prompting sponsors to consider alternative funding sources, which may result in more data centre securitisation transactions coming to market.
The two leading data centre securitisation structures used in the US are the Single Asset, Single Borrower (SASB) structure under which commercial mortgage-backed securities (CMBS) are issued, and the Direct Debt Master Trust (DDMT) structure, under which asset-backed securities (ABS) are issued. The SASB structure is well-suited to financing individual data centres or tightly held property portfolios leased to investment-grade tenants where simplicity and transparency are key. The DDMT structure is more suited to securitise data centre receivables on a revolving basis, which allows multiple issuances of notes backed by pools of receivables, all held within a single master trust. These features make it ideal for sponsors who wish to access the capital markets regularly to securitise portfolios of receivables in a programmatic and cost-efficient, without establishing a new trust structure for each transaction.
Data centre ABS is still nascent in Europe due to property ownership and legal structuring restrictions, which has required data centre sponsors to work with less flexible European ABS frameworks than those used in the US. As a result, some European sponsors have been exploring CMBS data centre structures as an alternative. Notwithstanding these challenges, a handful of high-profile data centre ABS deals have been completed in Europe recently, including the first public data centre ABS by Vantage Data Centres in 2024.
Securitisation funding for the Australian data centre market is at an even earlier stage. While Australia has seen record securitisation volumes overall in 2024, data centre ABS transactions are still emerging.
Innovative structures and lifecycle financing
Financing structures in Australia’s data centre sector are increasingly tailored to match the lifecycle of data centre projects. Long-term hyperscale leases (usually for a term of 10–15 years) with creditworthy tenants support higher leverage (typically up to 8–10x EBITDA) due to their stable and predictable cash flows. In contrast, greenfield developments generally require a 65–75% debt and 25–35% equity mix, with leverage assessed more conservatively, often around 65–70% LTV or 6–7x EBITDA once the asset is operational and stabilised. This cautious approach reflects the construction and ramp-up risks associated with new builds, especially in emerging markets like Brisbane.
Portfolio financing, which combines both construction-phase and operational data centre assets under a single structure, is becoming more common in Australia. This blended approach allows sponsors to leverage the cash flow stability of operational assets to support more favourable terms for construction-phase assets. Operational assets within the portfolio can attract leverage up to 8–10x EBITDA due to existing tenant contracts and cash flows, while construction assets are financed more conservatively (around 6–7x EBITDA or 65–70% LTV). The overall capital structure is often optimised using common terms deeds to harmonise terms across tranches, allowing for multiple lenders and facilities (e.g., construction debt, mezzanine, green loans and equity) to be governed under a unified legal framework. This approach enables sponsors to diversify risk and unlock capital efficiency across the asset lifecycle including through cross-collateralisation.
The increase in portfolio financing means the use of common terms deeds will become more prevalent as sponsors seek to standardise terms across multiple tranches of debt, making it easier to coordinate between different lenders and investors under multi-tranche or multi-asset financings such as the above, through allowing different facilities (e.g., construction debt, mezzanine, green loans).
Joint ventures between data centres and GPUaaS providers (for example the joint venture between SharonAI and NEXTDC) are also emerging to share development costs and risks to meet the growing demand for high-performance computing infrastructure. These partnerships are designed to enhance bankability, improve operational efficiency and align capital with evolving customer needs.
As a result of these innovations, multi-desk lenders who can offer both development and leveraged finance solutions, as well as more flexibility in covenant structures, drawdown mechanics and tenant qualification criteria, will be competitively placed to grow market share.
Exit strategies and change of control
Funds with 10-year horizons aim to exit once platforms are fully contracted and perceived as high-growth infrastructure assets. Change of control covenants are often removed for mature platforms to facilitate refinancing by new owners, especially during an exit or acquisition, which is particularly relevant in Australia’s active M&A environment. However, this must be carefully assessed to ensure it adds value without compromising lender protections.
Lenders are also positioning themselves to capitalise on exit opportunities through securitisation or private placements, especially as institutional investors and REITs continue to dominate the funding landscape.
Sustainability and energy integration
Sustainability is no longer optional and is being entrenched even further as a core driver of bankability in the Australian data centre market.
Hyperscalers operating in Sydney, Melbourne and emerging hubs like Brisbane, are under increasing scrutiny for their energy consumption and sustainability practices and are being benchmarked on their power efficiency and energy sources, prompting data centres to explore onsite energy generation and direct power purchase agreements. Some, such as Amazon Web Services, are even investing in wind farms to secure green energy.
Instruments like green loans and sustainability-linked loans (SLLs) are being increasingly used by data centres seeking to align their financing objectives with their climate goals. These labelled instruments can offer favourable terms, as well as (in the case of SLLs) incentivising efficient outcomes by linking interest rates to performance against multiple KPIs. In contrast, green loans are focussed on use of proceeds, and often involve less complex monitoring. They are attractive to borrowers seeking ESG-aligned financing that is less administratively burdensome, especially for single-purpose projects.
BESS and capital expenditure (capex) impact
A proposed policy direction in Europe may require large-scale BESS to be integrated into new data centre developments to support data centres for multiple hours. This policy direction is part of a broader push to embed data centres into the European energy ecosystem as flexible grid assets, treating them not just as consumers but as active participants in grid management. If these reforms are introduced this could increase initial Capex for a European data centre development by up to 20%; this could significantly impact business models and financing structures.
Although no equivalent reforms have been proposed for Australia, data centre operators in Australia have already started co-locating BESS with their facilities to improve energy resilience, reduce costs, and unlock new revenue streams. For example, Quinbrook Infrastructure Partners recently announced a 1 GWh BESS at its Brisbane data centre campus, making it the largest of its kind in Australia. Australia is also viewing data centres as strategic infrastructure assets, and co-located BESS is seen as a way for data centres to future-proof operations and participate in grid services. Combining financing for BESS co-location projects with data centre development introduces complex structural and risk considerations for lenders.
Traditionally, BESS has been treated as an operational expense when deployed through third-party providers (e.g., Potential Energy, Energy Renaissance, Zen Energy), who offer energy-as-a-service models. However, when data centres own and operate a BESS, it becomes a Capex item, requiring, asset-level financing, performance guarantees and revenue forecasts to determine whether the returns justify the investment. This shift demands more sophisticated financial modelling and may influence lender appetite and covenant structures.
Regulatory complexity
The rapid expansion of data centre infrastructure in Australia brings regulatory challenges including securing power and planning permissions and meeting data sovereignty requirements. In addition, foreign investment in data centres is subject to intense scrutiny due to concerns over national security, data sovereignty and critical infrastructure. Data centres in Australia that are treated as critical infrastructure under the Security of Critical Infrastructure Act 2018 (SOCI Act) may also be subject to ongoing reporting and supervision, even if they don’t store government data.
Lenders are responding to this regulatory complexity by requiring pre-clearance or conditional approvals from the Foreign Investment Review Board before committing funds, including ongoing compliance covenants in financing terms tied to Australia’s SOCI Act and requiring grid connection guarantees or backup power strategies due to delays in energy approval.
Operational complexity
To address the increasing operational complexity in data centre development, lenders are increasingly requiring contractual assurances, including guarantees, that a data centre project will be completed on time and within budget, with delays or cost overruns triggering covenant breaches or funding suspensions.
Before releasing debt financing, lenders are also demanding that sponsors commit a defined portion of equity upfront (typically 25–35% of the capital stack for greenfield projects).
Lenders are also increasingly insisting on step-in rights, allowing them to take control of the project if the borrower defaults or fails to meet key obligations. The step-in rights frameworks will often require pre-approved General Contractors (GCs) and operational continuity plans.
More generally, GC track records are heavily scrutinised and customer contracts must be bankable; consequently, long-term leases must demonstrate contracted revenue streams, clear Service Level Agreements and minimal early termination rights.
Offtaker contract trends
Offtaker contracts are binding agreements under which a customer (the offtaker) commits to purchasing or leasing data centre capacity (e.g., racks, power, cooling, GPUaaS) for a fixed term. These contracts are evolving, with shifts in pricing models, flexibility and contract duration. Customer reluctance to share contractual details with financiers remains a barrier, restricting the level of disclosure lenders require to assess risk under these contracts.
Data liability trends
In response to the heightened data breach risks associated with data centres, before financing is approved, lenders now conduct deep cybersecurity audits of data centre operators and tenants. In Australia, data centres classified as critical infrastructure (under the SOCI Act) face mandatory cyber incident reporting, which lenders factor into risk assessments.
Lenders also assess data breach liability as part of their credit process, which can be open-ended and difficult to quantify. Financing agreements increasingly include cybersecurity covenants requiring ongoing compliance with standards like ISO 27001 or SOC 2, as well as indemnity clauses that shift liability for breaches to operators or tenants and termination rights if a breach materially affects operations or asset value. Lenders also require borrowers to carry cyber liability insurance and actively monitor compliance with laws (such as the SOCI Act), with non-compliance potentially triggering loan default provisions or restructuring requirements.
Some lenders are offering SLLs that reward data centres for improving cybersecurity or enhancing data privacy protections.
Equity investment strategies
Data centres offer a compelling blend of infrastructure stability and tech-driven growth, making them attractive to long-term equity investors, who typically fund 30% of data centre projects. To attract them, developers must highlight unique selling points such as higher target returns (compared to solar or wind projects), sustainability credentials, resilience and adaptability and their ability to be integrated into the energy ecosystem.
Market outlook and strategic positioning
Recent reports from Bloomberg and TechCrunch indicate that Microsoft has scaled back or paused several global data centre projects (including those in Australia, the UK and parts of the US) citing factors such as oversupply, power constraints and a strategic shift toward retrofitting existing facilities (rather than new builds).
In Australia, this has raised concerns about the momentum of hyperscale investment, particularly in regions where Microsoft was expected to anchor new developments. On the positive side, the reduced competition could also create opportunities for other operators to negotiate more favourable terms with landowners, utility suppliers and tenants. Smaller and mid-tier providers may benefit from a more diversified tenant base and reduced competition for grid access and real estate.
The industry remains optimistic despite these developments.
Conclusion
Data centre financing in Australia is entering a transformative phase shaped by energy integration, heightened regulatory oversight and the growing influence of AI and GPU-driven workloads. As the sector matures, lenders are being called to adopt more flexible, lifecycle-based financing models that accommodate hybrid infrastructure, such as colocation with BESS and other behind-the-meter renewables. At the same time, data centre operators are under continuing pressure to demonstrate a strong commitment to ESG integration. This is not only essential to meet the expectations of financiers and customers, but also to ensure alignment with Australia’s evolving regulatory landscape, including the SOCI Act and emerging climate-related disclosure standards.
Looking for deeper insights into the data centre space?
This article is part of our ongoing thought leadership series exploring key legal developments and strategic considerations on the data centre sector in Australia.
If you found this insightful, explore our previous articles to deepen your understanding and stay ahead of legal trends:
- “Data centre series: Implications of data security and sovereignty trends for the Australian data centre market,” July 15, 2025
- “Powering Australia’s data centre boom: Navigating compliance and opportunity,” July 3, 2025
- “A planning pathway for data centre development – Summary and key issues,” June 27, 2025
- “Powering tomorrow: A snapshot of a data centre,” June 12, 2025
- “In demand: A snapshot of the rise of data centres,” June 4, 2025
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