Surety credit facilities have become a leading mechanism for the data center industry to meet the various financial requirements arising in the normal course of business. A credit product, surety bonds offer an alternative to costly bank letters of credit and liquidity draining cash deposits for the following obligations:
Willis has recognized that there will be a continued energy demand for data centers as artificial intelligence and cloud operations continue to become more engrained in our daily work. We support bond syndications ranging from $5 million to $500 million in support of data center developments. Our credit facility becomes a critical piece of your financing structure, providing financial flexibility to aid in growth and working capital optimization.
$500M We support bond syndications ranging from $5 million to $500 million in support of data center developments.
Surety bonds are an off-balance sheet financial assurance mechanism, generally accepted by utility companies for interconnection agreements and other financial security requirements. The surety bond is supported by a corporate guarantee, alleviating the need for utilization of an owner’s credit facility or third-party bank support.
Surety bonds can be a valuable tool utilized by data center developers to achieve savings that can be used for other costs associated with the project. Surety bonds are key for developers to provide financial protection and increase their project credibility with owners. Below is a list of considerations when dealing with these types of bonds:
Surety bonds are backed by a corporate guarantee which takes the form of an indemnity agreement. These agreements are typically two to five pages long and contain many provisions outlining terms for the extension of credit. This document is the only recourse for the surety company should an issue arise related to the bonded obligation. Bond providers typically like to be pari-passu with the lender and these can be a bit complex due to any of the SPVs that may exist for the project.
One of the more difficult stages of new data center development is the interconnection process with the local power utility. Due to the increasing demand of data centers, interconnection can represent a long wait time due to the backlog of getting new projects connected to a power source. Ensuring data centers have ample and reliable energy to support their new facility is key for developers and the owner/investors for these large capital projects. Bonds represent a more efficient way for growing companies to meet these requirements.
To help bring efficiency to securing this financial security, Willis has developed a team that specifically places letters of credit through surety facilities. Many surety carriers have arranged fronting agreements with financial institutions to provide letters of credit. Surety backed letters of credit mirror traditional LOCs and are typically cost competitive with the banking facility terms. This product has become increasingly popular for data center development with local utilities who don’t accept traditional surety bonds.
Our group has access to all the major companies that provide bonding for data center development. We leverage our experience and expertise with carriers who are responsible for providing this important capacity. Additionally, Willis has in-house capacity to help support syndication efforts. This allows us to expedite and achieve the most efficient terms for our clients.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
