Unlocking the future: Why data asset financing is set to be the next evolution of asset-backed lending

Asset-backed financing has undergone many iterations and revolutions over time. Real estate, IP, inventory, receivables – if you look down a company’s balance sheet today, you can be confident that the market has found a way of collateralising each asset.

Indeed, in the depths of the COVID-19 pandemic, a number of borrowers faced a liquidity crunch and turned to asset-backed financings as a way of raising emergency capital when cash flow lending became impossible. In lieu of cash flow projections, borrowers buttressed lender confidence by collateralising an increasingly broad array of saleable assets – for example landing slots (Delta Airlines) and cinemas (AMC Entertainment).

However, in an increasingly digitised world where businesses often have a larger online footprint than a real one, it could be time for the next iteration of asset-backed lending – data asset financing.

Importantly, data is ubiquitous. Whereas only certain borrowers were able to collateralise unencumbered assets in 2020, data is an asset type that almost all borrowers accrue as part of the ordinary course of business. Realising the inherent value of this data and utilising it to raise financing could open up an entirely new avenue of financing for a broad spectrum of companies.

This new window of opportunity comes at a time when companies seeking to raise debt capital, whether in the form of private credit, capital market securities, or syndicated loans, continue to face volatility and a higher cost of debt relative to previous years. 

Against this context, data asset financing allows companies to borrow capital secured against a newly-utilised pool of saleable assets, diversifying their capital structures and potentially accessing better economics, particularly if the financing is structured to be non-recourse.

However, using data in this way comes with its own set of considerations. Data’s intangible and varied nature means that it can stretch across multiple jurisdictions and touch on a series of different data regulatory frameworks. Valuations are also more bespoke and complex matters. As a result, a successful data asset financing is contingent on the use of a full suite of specialist advisors.

Ropes & Gray has written a primer, Data Asset Financing: New Asset - New Opportunity, on this new iteration of asset-backed financing, which explains: 

• What data assets are;
• How data assets can be financed;
• How data assets can be valued;
• What data regulations need to be considered; and
• How data asset financings can be structured.