AINEWS
In a July 29 response to Latham & Watkins, the SEC said data center financing deals don't fall into the regulated asset backed category, clearing the way for bond style funding outside the usual rules.
In a one-paragraph response dated July 29, 2026, the SEC's Division of Corporation Finance told Latham & Watkins that fixed-income securities issued in data-center securitizations of the type described in the firm's request letter are not asset-backed securities under the federal securities laws. The reclassification is narrow, but it changes which rule book applies to the financing of the AI era's compute backbone.
To see why, it helps to know what "securitization" and "asset-backed" mean. Securitization is the process of turning future cash flows (a pool of loans, leases, or contracts) into tradeable securities. When those securities are classified as "asset-backed," they enter a specific regulatory bucket under section 3(a)(79) of the Securities Exchange Act of 1934, with risk-retention, capital, and disclosure rules that don't apply to ordinary corporate debt. The July 29 letter says data-center deals of the kind Latham described fall outside that bucket, so the same fixed-income paper can be structured and sold without triggering the ABS rule book.
Three independent law-firm advisories read the letter the same way. Latham & Watkins, which drafted the request, called the response a regulatory clarity event for data-center securitizations. Alston & Bird's finance advisory treats it as guidance that gives issuers and operators more flexibility. Dechert's OnPoint calls it a no-action grant to direct-issuance data-center structures. The convergent reading across issuer counsel and outside observers is the strongest signal that the letter does what the headlines suggest, and that the door is open at the same width on each side of the table.
The timing lines up with the AI buildout. Building a hyperscale data center requires capital measured in the billions, mostly spent on the building, the chips, the networking, and the power purchase agreements that keep the lights on. Most of that has been financed through corporate debt, bank loans, and the cash flow of the hyperscalers themselves. As AI demand has pulled new institutional capital into the sector, operators and their lenders have been looking for structures that look more like project finance and less like corporate borrowing, and the ABS bucket was the wrong shape for what they wanted to sell.
Two limits matter. First, a no-action response is not rulemaking. The Division of Corporation Finance told one law firm, in response to a specific request, that one defined structure falls outside the ABS definition. It did not exempt all data-center securitizations, and the staff can narrow the door through later interpretive positions. Second, the relief is tied to the facts in Latham's letter: a direct-issuance structure with specific collateral and revenue contract characteristics. A deal with different collateral, longer or shorter revenue contracts, or a different sponsor profile may not sit on the same side of the line, and the SEC has not yet said it would.
What to watch. The first public issuance tested against the July 29 letter's facts will set the working template, and the rating agencies' treatment of that paper (investment-grade or not, and on what collateral coverage) will determine how much fixed-income money can follow. The next move on the clock is the second letter: either a new no-action response that extends the door to other data-center structures, or a public Division of Corporation Finance position that walks it back. Either one tells the market whether the AI buildout's new funding lane is a permanent on-ramp or a single permitted exit.