Data Centre financing in Norway

Capital has poured into data centre projects over the last years, Norway being no exception. In this article, we take a closer look at the debt financing of large-scale data centre projects in Norway and how lenders secure their exposure. 

AI data centres in Norway are, in practice, financed through two parallel but distinct capital layers. The first is financing of the facility itself, meaning the land, buildings, cooling systems, transformers, grid connection and other fixed infrastructure. The second is financing of the computing equipment that goes into the data centres, primarily the GPUs that provide the compute power in an AI data centre.

The two capital layers carry different risk profiles, tenors and often different sources of capital. This article focuses on facility financing because these are the project financings that currently seem to underpin most Norwegian data centre projects. However, we briefly touch upon GPU financing as an emerging and more specialised financing structure within the same project.

A review of the major Norwegian data centre projects that have been announced or are under construction shows that facility financing is clearly the dominant financing structure. Several of the largest projects are financed through senior secured syndicated bank debt or bond financing secured against the facility itself, with Norwegian and international banks acting as lenders.

Examples from the Norwegian market illustrate the range of financing structures in use, varying from syndicated bank debt involving Norwegian banks in the financing of large data centre projects in Narvik and Kristiansand, to a substantial senior secured bond financing a project in Telemark, and senior secured financing led by an international asset manager for a project in Hamar. We can also find pure equity structures, including Norwegian industrial and financial investors providing equity for a data centre project in the Oslo area, as well as cases where global technology companies self-finance projects directly off their balance sheet.

Common to these structures is that it is the facility, the cash flows generated by its operation, and the underlying project agreements that form the security assets for lenders, rather than the computing equipment itself.

Security over assets in Norway is governed primarily by the Norwegian Pledge Act. Lenders should note that that under Norwegian law parties cannot freely agree security rights over any asset they choose, as valid security can only be created in asset categories specifically recognised by statute. 

Norwegian law distinguishes between fixed charges over specifically identified assets and floating charges over categories of assets as they exist from time to time. For a typical data centre financing, the recommended security package will combine both types of assets. Priority between competing security interests is generally determined by the time of registration or perfection.

A comprehensive security package for facility financing of a Norwegian data centre will typically include security over shares, real property and lease rights, and bank accounts and receivables, as well as floating charges over operating assets and trade receivables. Another important element increasing the lenders' protection, are step-in agreements as described below.

Share pledges

A pledge over the shares in the project company is a cornerstone of any lender's security package. Under the Norwegian Financial Collateral Act, the parties may contractually agree streamlined enforcement of share pledges, allowing the lender to sell the shares or take ownership based on an independent valuation without involving the enforcement authorities. In practice, enforcement of a share pledge can in many cases be carried out within a matter of weeks. This makes share pledges particularly valuable where a lender wishes to take control of the project company as a going concern upon default. At the outset it is important to establish whether the Norwegian Financial Collateral Act is applicable to the share pledge, and if not, the statutory provisions of the Enforcement Act need to be followed, which give the secured parties less control over the enforcement process. 

Real property and lease rights

AI data centres can be located on leased land or even in leased buildings. Security over the ground lease and the building, including fixtures permanently attached to the building, is perfected by registration with the Land Register. Security over lease rights to a building or specific areas within a building may also be registered in the Land Register, provided the lease agreement has itself been registered in advance. This will generally require the consent of the lessor and/or the landowner.

Floating charge over operating assets

Machinery, equipment and certain intellectual property rights that are owned and used by the pledgor in its business can be pledged through a floating charge over operating assets, provided the pledgor is a Norwegian entity registered with the Norwegian Register of Business Enterprises. A floating charge over operating assets is perfected by registration with the Register of Mortgaged Movable Property. The question of whether an asset is treated as a movable asset or as part of the real property depends on whether the equipment is permanently integrated or physically fixed to the property.

Bank accounts and receivables

Pledges over the project company's bank accounts and receivables give lenders direct access to the project's cash flows. Account pledges are perfected by notice to the account bank, while pledges over trade receivables can be registered as a floating charge with the Register of Mortgaged Movable Property. In addition to the floating charge, it is often prudent to pledge monetary claims under specific contracts, such as customer contracts, individual by notice to the debtor. Security over monetary claims can generally be enforced quickly upon default, by notifying and collecting payment from the relevant debtor directly without involving the enforcement authorities.

In addition to the traditional security package, contractually based step-in rights have become a central and increasingly important element in data centre project financing. A step-in right typically allows a lender to cure the borrower's default towards key contractual counterparties and, where necessary, assume operational control of the data centre, without first having to complete a full enforcement process. This is particularly important in data centre projects, where even a short interruption to operations can cause significant loss of value for both borrower and lender, and where the project's value is closely tied to continuous, uninterrupted operation.

Step-in rights need to be specifically negotiated with the counterparties to the key underlying project agreements, including lease agreements, power purchase agreements (PPAs), construction contracts, and any colocation or customer agreements. These agreements often contain change of control provisions that can be triggered unintentionally if the step-in mechanism is not carefully designed. Step-in arrangements must therefore be structured so that they are effective under Norwegian law while not inadvertently triggering such provisions elsewhere in the project documentation.

In a GPU financing, step-in rights are often supplemented by quiet enjoyment letters and collateral access agreements. These arrangements serve several purposes, for example giving tenants the right to uninterrupted use of the data centre where the landlord is in default, or lenders financing the GPUs the right to access the premises and, if necessary, remove assets in an enforcement scenario, independently of the landlord's or colocation provider's own rights. This can be particularly important where critical infrastructure such as GPU equipment is housed in facilities operated by a third-party landlord or colocation provider. These step-in agreements and quiet enjoyment letters need to be carefully drafted and tailored to the specific project.

Where a project involves multiple financing tranches, for example separate facilities for the data centre and for the GPU financing, step-in rights should also be coordinated through inter-creditor arrangements and collateral access agreements between the lenders. Without such coordination, lenders at different levels of the capital structure risk triggering step-in independently of one another, or working at cross-purposes in a distress scenario.

GPU financing entails financing the GPU infrastructure that go into the data centres and carries a higher risk than a facility financing. Based on our experience so far, GPU financing for Norwegian data centre projects is provided by highly specialised private credit lenders rather than more conservative banks and financial institutions. 

GPUs and other removable computing equipment are movable assets and can be captured by a floating charge over operating assets described above, provided the equipment is owned and used by the pledgor in its business. The security covers the GPU fleet as it exists from time to time, without the need to specify each individual unit, and therefore automatically covers replacements and upgrades of the equipment.

It should be noted that leased GPUs owned by a third-party lessor fall outside the pledgor's floating charge and require alternative security arrangements tailored to the lease structure.

When GPU financing is combined with facility financing in the same project, coordination of step-in rights and inter-creditor arrangements, as described above, is particularly important.

Capital has poured into data centre projects in the last few years, Norway being no exception. Much of this capital has relied on the facility security and step-in structures described above to get comfortable with the risk. As lenders' books fill up on data centre exposure, we expect more scrutiny to fall on the strength of these structures, including the credit quality of the underlying project counterparties, such as the tenants, PPA counterparties and colocation providers.

This does not mean that the financing window for Norwegian data centre projects is closing. However, it means that the security package and step-in rights discussed in this article are likely to come under closer scrutiny from lenders and their advisers, both at the term sheet stage and when projects are refinanced. Early engagement with Norwegian legal advisers on these structures is therefore likely to matter even more for new projects in the pipeline.

At Selmer, we advise developers, investors, operators and lenders across the full lifecycle of data centre projects in Norway, from site development and power arrangements through permitting, construction, financing and operations. Our multidisciplinary teams bring together specialists in energy, real estate, planning and environmental law, construction, tax, public procurement and financing. Drawing on hands-on experience from several of the largest data centre developments in Norway, we help clients navigate the commercial, regulatory and practical challenges that determine whether projects deliver.

If you are considering or progressing a data centre investment in Norway, we would welcome the opportunity to discuss how we can assist. Please reach out to our team for a conversation.