Morgan Stanley is pushing data center developers toward leveraged loans instead of traditional bonds, according to a source cited by The Information. The bank estimates roughly $15 billion in such loans will be issued this year.
This shift reflects a broader strategy to meet the massive capital needs of the data center industry, which is expanding rapidly to support AI and cloud computing. Leveraged loans offer more flexible terms but carry higher risk compared to investment-grade bonds.
The $15 billion figure represents a significant portion of the overall financing landscape for data centers. Morgan Stanley is one of the most active banks in this sector, giving its recommendations considerable weight.
Developers face a choice: accept the higher costs and risk of leveraged loans or seek alternative funding sources. The move could accelerate construction timelines if financing becomes easier to secure, but it also exposes lenders to greater default risks.
Critics argue that pushing leveraged loans may inflate a bubble in data center financing, echoing past patterns in commercial real estate. The strategy's success hinges on sustained demand from tech giants.