What HSBC is doing
HSBC has begun early talks with insurers about moving risk on a batch of project finance deals, a portion of which involve AI infrastructure, people with knowledge of the discussions said. Those discussions follow a prior look at whether insurers would cover a portfolio made up solely of data center assets.
The talks are still early and might not result in transactions. A spokesperson described the effort as standard portfolio management and noted that the bank's data center exposure is limited.
How the structures work
HSBC has been assembling a significant risk transfer - an SRT - tied to a pool of data center loans topping $1 billion and is evaluating ways to hedge that exposure even though it is not a big force in this niche. "We are not a big player at all in the US in data center lending, same in Asia - this is not a significant part of our growth story," Chief Financial Officer Pam Kaur said on an earnings call this week.
Both SRTs and credit risk insurance free up regulatory capital and help banks cushion losses. In an SRT, investors typically place liquid assets upfront to absorb potential losses on the first-loss slice of a portfolio in exchange for coupon payments. With credit risk insurance, lenders pay premiums to cover a set share of losses on specific loans.
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The AI financing squeeze
As the bill for AI infrastructure could reach into the trillions, firms are expected to rely more heavily on debt - ranging from asset-backed securitizations to private credit and syndicated loans - since internal cash and equity won't be sufficient. Strains are already emerging: the cost of financing for AI-buildout-related bonds and loans is climbing, and some insurers report they are nearing their limits.
Other banks are pursuing similar risk sharing. Barclays Plc is seeking insurance cover on north of $10 billion in AI infrastructure credit, and Deutsche Bank AG has been arranging an SRT linked to roughly $2 billion of project finance debt that includes data center loans.
Why it matters for your portfolio
If insurers take on more of this risk while yields climb and capacity tightens, the price and availability of AI-related financing could shift quickly. The bottom line: watch lenders, insurers and spreads on AI-linked debt - they will tell you how easily the next wave of data centers gets funded.
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