Case Study
Distressed Data Center Recapitalization
expertData CenterSenior debt refinance + new preferred equity~24 min
The Deal
You are the asset management analyst for the sponsor of Meridian Data Center, a stabilized colocation facility financed in 2023 with a floating-rate senior loan and a 3-year interest rate cap. The cap expired at the end of July 2026, SOFR has risen sharply since origination, and the property's debt service has jumped to a level NOI can no longer comfortably cover. Rather than pursue a full refinancing, the sponsor is recapitalizing with a partial senior loan paydown and a new preferred equity tranche - you need to size the shortfall, test the new structure against a future take-out lender's covenant, and explain how this crisis could have been avoided.
You’ll Practice
- Calculate DSCR under a floating-rate loan before and after a rate cap expires
- Size a senior loan paydown needed to hit a target DSCR
- Calculate a fixed-charge coverage ratio that includes a preferred equity return
- Judge whether a recapitalized structure clears a take-out lender's minimum DSCR
- Connect a rate cap's expiration to the underlying fixed-vs-floating financing decision and identify earlier hedging alternatives