Nvidia announced $500bn of AI infrastructure financing last week, alongside Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR. The financing is intended to pool capital for AI labs, enterprises and cloud providers to access compute hardware without loading their balance sheets. Two weeks before that announcement, the Securities and Exchange Commission staff answered a question that could shape how such deals are structured and regulated. The exchange took six days.
What was asked, and what came back
Latham & Watkins wrote to the SEC on 23 July, asking a narrow question: do data centre securitisations fall outside the Exchange Act definition of an asset-backed security? The definition matters because it triggers the risk retention rules written into Dodd-Frank after the 2008 financial crisis. Those rules require a deal sponsor to keep a portion of the credit risk on its own books, rather than transferring all of it to investors. If data centre securitisations are not considered asset-backed securities, sponsors can structure deals without that retention requirement, potentially reducing the cost of capital.
Kayla Roberts, who chairs the SEC’s Office of Structured Finance, replied on 29 July. The staff agreed with Latham’s view. That response, while technically non-binding, gives market participants a written interpretation they can rely on when designing future transactions.
The argument Latham made
The letter turns on a phrase. An asset-backed security, under the SEC’s long-standing interpretation, rests on a self-liquidating financial asset. Since 1992, the SEC has read that as an asset that converts into cash within a finite period. A mortgage qualifies because repayment extinguishes the loan. Latham argued that a data centre does not. The facilities are tangible and physical, they endure beyond the life of the securities, and they may appreciate. When the notes are repaid, the issuer still owns the building.
The firm set that against a single-asset commercial mortgage deal. In such a deal, the issuer holds only the loan and ends up with nothing once it is repaid. On that comparison, the reasoning holds together. The SEC staff accepted it.
Latham has worked on data centre securitisation since the first deal in 2018. It told the SEC that the market has since passed $50bn in cumulative debt issuance. The firm also described how the market had behaved. Participants complied with the asset-backed rules throughout, the letter says, “out of an abundance of caution” rather than because the definition required it. That careful compliance suggests that the industry was looking for a formal confirmation to unlock more flexible structures.
What the letter covers
The letter describes the securitised assets in some detail. They include buildings and data halls, electrical and backup power systems, cooling systems, network connectivity, physical security, land, and the contracts needed to run the facilities. It does not mention chips or graphics processors. That omission is significant because Nvidia’s recent financing push is tied to compute hardware, not just the physical real estate that houses it. The SEC staff response, by contrast, is limited to the real property and operational components of a data centre.
The letter also sets out the shape of these deals. Loan-to-value tops out at 70% of appraised value. Notes carry an anticipated repayment date of around five years. Final maturity runs 25 to 30 years. Nearly all use a master trust, the letter says. That structure lets sponsors issue further securities later, add data centres, and in some cases dispose of or substitute assets. Investors generally have no recourse to the sponsor or the operator. The letter records the usual exceptions as fraud, wilful misconduct and gross negligence in managing the sites.
What the letter says about itself
The SEC response sets its own limits in its own words. It reflects the views of the staff of the Division of Corporation Finance, not the Commission. The Commission has “neither approved nor disapproved its content”. It is not a rule or a regulation. It has “no legal force or effect”. The staff add that their views rest on the representations in Latham’s letter, and that “any different facts or conditions might require the Division to reach a different conclusion”.
That self-limiting language is standard for SEC staff guidance, but it still carries practical weight. Market participants often treat such letters as persuasive authority, and ratings agencies may take them into account when assessing deal risk. However, the explicit caveats mean that a future fact pattern could produce a different result, particularly if the assets in question include computing equipment rather than only physical infrastructure.
What the lawyers say it means
Orion Mountainspring, a securitisation lawyer at Orrick, told reporters that the response gives sponsors something specific: the chance to push down the equity required in a deal over time. He called it good news for sponsors. The ability to reduce equity requirements can improve returns and make more deals economically viable.
B.K. Lee at Alston & Bird expects structures that are more flexible and capital-efficient, plus more deals now that the guidance exists in writing. Written guidance removes a layer of uncertainty. Lawyers can now advise clients with greater confidence that a data centre securitisation will not be reclassified as an asset-backed security subject to risk retention.
Seth Messner of Katten Muchin Rosenman told reporters what Latham had sought: it asked the SEC to put these deals outside the risk retention rules, and the SEC basically agreed. Messner was more cautious on Nvidia. It is not clear whether its agreements are designed for securitisation, he said, only that the guidance sounds applicable if they are. Katten’s data centre partners placed the rules in context. They date from after the 2008 crisis, which was triggered in part by securitisations of poorly underwritten residential mortgages. The risk retention rules were meant to align the interests of sponsors and investors by forcing sponsors to keep some skin in the game.
The SEC and multiple ratings agencies declined to comment to reporters on the letter.
Nvidia’s position, and its release cycle
Nvidia has not said whether the platforms it built with six finance giants will securitise anything. It agreed those arrangements through memoranda of understanding, which are preliminary and non-binding on many terms. Their stated purpose is to pool capital so AI labs, enterprises and cloud providers can reach compute hardware without drawing on their own balance sheets. That purpose could be served by various financing structures, not necessarily securitisation.
Nvidia has described its hardware as a revenue-generating asset, and reached for four adjectives: productive, long-lived, fungible and flexible. Those adjectives suggest a degree of predictability that could support asset-backed financing, but the SEC letter does not address hardware. It remains an open question whether the staff position would extend to compute-linked collateral, such as graphics processors themselves.
Nvidia’s release cadence is a matter of record. The company has grown by moving large customers to its newest hardware close to annually. At Computex in 2024, it shortened its release cycle from two years to one. That rapid pace creates a tension: Nvidia wants customers buying as many next-generation chips as possible, but it also wants them to know their old chips will stay valuable. If customers believe that older hardware will rapidly lose value, they may be less willing to finance long-term commitments.
The desk reported yesterday that Nvidia is backing the buildings behind an OpenAI data centre in Ohio, to the value of $105bn. That investment is in real estate and physical infrastructure, which falls squarely within the scope of the SEC staff letter. It does not involve the chips themselves, unless a future structure tries to include them.
Jeff Gundlach, a prominent investor, has said that turning compute into an asset class looks like a market top. His comment reflects broader concern that the AI infrastructure boom may be overheating, with too much capital chasing assets that could lose value quickly as technology evolves. The SEC staff letter does not address valuation or market dynamics; it only clarifies a regulatory definition.
What would settle it
Four things, all checkable, would settle the open questions. The first is whether Nvidia discloses that any of the $500bn involves securitisation. So far, the company has not said so. The second is whether the staff position ever reaches hardware rather than facilities. The letter does not address that either way, leaving room for future interpretation.
The third is whether ratings agencies treat compute-linked collateral as they treat buildings. Buildings have long-lived value and relatively stable resale markets. Graphics processors, by contrast, can become obsolete quickly as new generations are released. A ratings agency that discounts the residual value of chips would make it harder to securitise them.
The fourth is where the risk finally sits. Five tech giants already hold $1.65tn off balance sheet, and lenders already issue GPU-backed debt. That suggests the market is already moving toward asset-backed structures, even without explicit SEC guidance on hardware. The staff letter removes one regulatory obstacle for data centre real estate, but the underlying question of whether compute itself can be treated as a self-liquidating asset remains open.
Source: TNW | Nvidia News