Key AI financing players seek to reduce holdings! Morgan Stanley considers selling part of its data center-related exposure.

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As one of the key players in the artificial intelligence financing competition, Morgan Stanley is considering selling part of its data center-related exposure through a method known as “Significant Risk Transfer” (SRT).

According to media reports citing anonymous sources, Morgan Stanley has held preliminary contacts and discussions with potential investors regarding an SRT linked to a portfolio of loans for businesses related to AI infrastructure.

SRTs backed by data center asset exposures are currently a new niche segment in the credit risk transfer market. In this market, banks sell credit-linked notes to institutional investors to hedge their own credit risks, manage capital adequacy, and free up balance sheet room for further lending.

Morgan Stanley is also exploring other ways to hedge or syndicate part of its data center risks, and there is no guarantee that these early-stage SRT talks will ultimately result in a deal.

In October this year, Morgan Stanley arranged over $27 billion in debt financing and about $2.5 billion in equity financing for a special purpose vehicle (SPV) related to the Hyperion data center project being developed by Meta Platforms Inc. in Richland Parish, Louisiana.

Additionally, Morgan Stanley led three recent junk bond issuances for TeraWulf Inc., Cipher Mining Inc., and Applied Digital Corp., with some of the funds to be used for financing the construction of new data center facilities.

Morgan Stanley’s strategists predict that by 2028, large cloud computing companies will spend about $3 trillion on data center infrastructure projects. The bank estimates that only about half of this can be covered by internal cash flow, with most of the remainder to be raised in the debt markets.

This lending surge could lead to banks becoming excessively concentrated in exposure to just a few companies.

Once known for its stability, Oracle has now borrowed tens of billions of dollars and is deeply tied to the AI boom. Its cost of debt default protection has soared in recent months. A Morgan Stanley research report notes that the banks and other lenders providing construction loans are likely key drivers of these rising costs.

Earlier this year, Morgan Stanley promoted an SRT product linked to a portfolio of private market fund loans. According to a Bloomberg survey published in June, global SRT sales are expected to grow at an average annual rate of about 11% over the next two years.

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