Creative Loan Structure Boosts DuPont Fabros

Tough times call for creative solutions. When data center REIT DuPont Fabros Technology (DFT) saw its borrowing ability curtailed by the credit crisis, it worked out a creative way to restructure loans secured by two of its data centers. The solution, which was announced this week, freed up $150 million and shifted the company's next major debt repayment from December 2009 to August 2011. The move helped boost investor confidence in DuPont Fabros, which saw its shares soar 36 percent Thursday.

Here's the scenario; DuPont Fabros had hoped to borrow at least $300 million through a loan secured by its huge ACC4 data center in Ashburn, Virginia and use the proceeds to fund construction of three new data centers in Silicon Valley, New Jersey and Ashburn. But then several potential lenders, including Lehman Brothers, were wiped out or hobbled by the Wall Street financial crisis in September.

With lending severely curtailed, DuPont Fabros was eventually able to borrow just $100 million, despite an appraisal that valued ACC4 at $680 million - a 15 percent loan to value ratio on a facility that was 87 percent occupied with long-term leases. As a result, it was forced to halt construction on the three data center projects.

At the same time, leasing was going slowly at the new Chicago CH1 data center, raising concerns about whether the company would need to repay a $135 million construction loan scheduled to come due on Dec. 31. DuPont Fabros could obtain an extension only if CH1 was 80 percent occupied, a prospect which seemed more uncertain with the slower sales cycle for enterprise users.

A solution was found in an "accordion" feature of the $100 million loan secured by ACC4, which gave DuPont Fabros the option of borrowing an additional $150 million - but only if it put up another property as collateral.

DuPont Fabros worked out an agreement to effectively fold the Chicago construction loan into the accordion feature of the existing loan on ACC4. The CH1 facility was added as collateral, allowing DuPont Fabros to secure the extra $150 million, which it used to pay off the $135 million construction loan on CH1. As a result, DuPont Fabros has breathing room, with no major loans coming due until August 2011.

"It was a win-win situation for everybody," said DuPont Fabros president and CEO Hossein Fateh.

It has certainly turned out well for DuPont Fabros investors. Shares of DFT gained $1.48 to $5.50 a share Thursday, an increase of 36 percent.

The company was also able to borrow $30 million to complete construction on its ACC5 project in Ashburn after signing two large leases. Projects in Santa Clara, Calif. and Piscataway, NJ remain idle for the time being.