Ask the editor: answered questions on GPU and data centre finance | InfraCompute

Question 1

What cash trap and covenant levels should we expect in our first GPU loan?

Randeep Bubbra · Accepted Answer

Expect two tests, not one. A cash trap stops distributions to the parent when coverage dips, and a lower default covenant is the point at which lenders can accelerate. The gap between the two is what gives you time to fix a problem with a customer or a delivery. What goes into the ratio matters as much as the level. Some filed facilities test contract cash flow less listed costs; others test operating income. Agree the definition first, then negotiate the number. Cash trap level in GPU loans: 1.10x in three filed facilities, 1.15x in one. Minimum DSCR covenant in GPU loans: 1.05x on contract cash flow, or 1.15x to 1.40x on operating income. What goes into the DSCR in GPU loans: Contract cash flow less listed costs, or three months of operating income.

Question 2

How much of the GPU cost will lenders lend?

Randeep Bubbra · Accepted Answer

Each draw is usually the lower of two numbers: a percentage of cost, and the amount the contracted cash flows can repay at a sizing coverage ratio. In practice the second limb often binds, so a longer or stronger customer contract can be worth more than a higher advance rate. Watch the cost definition. A percentage of GPU capital expenditure and a percentage of project costs that include networking and installation are different numbers. Advance rate in GPU loans: 90% to 95% of cost, lower before revenue starts. Sizing DSCR in GPU loans: 1.20x to 1.30x projected DSCR to maturity.

Question 3

Will our customer have to sign something for our lenders?

Randeep Bubbra · Accepted Answer

Usually yes. Lenders want the customer to acknowledge the security over the contract, agree to pay into the lenders' account and give the lenders notice and a chance to cure before it terminates. That is the direct agreement, sometimes called a consent and agreement. The filed deals differ on timing: some require it before the first draw, others by closing or as later negotiated. Ask for the customer's consent to a future direct agreement in the contract itself, so it is not a fresh negotiation when you raise debt. Customer direct agreement in GPU financings: Before the first draw, by closing, or only as negotiated.

Questions from legal teams, answered.

The questions

What cash trap and covenant levels should we expect in our first GPU loan?

How much of the GPU cost will lenders lend?

Will our customer have to sign something for our lenders?

The week in compute finance, read from the filings.