Barclays Turns to Insurers to Hedge Billions of Data Center Debt

The London-based lender has been assessing the appetite among insurers in recent weeks to provide credit risk cover for the loans, according to people familiar with the matter. The exploratory talks highlight the growing pressure traditional financial institutions face as they attempt to balance booming technological investments with strict regulatory capital requirements.

The discussions are currently exploratory, and final decisions regarding the exact size, structure, and timing of any potential deals have yet to be taken, the sources said, asking not to be identified because the discussions are private. A representative for Barclays declined to comment on the matter.

Banks frequently use credit risk insurance to hedge portfolios alongside other financial instruments, including derivatives, outright loan sales, and significant risk transfers. By sharing the risk of potential loan losses with specialized insurers or institutional investors, lenders effectively free up regulatory capital. This freed-up capital can then be deployed to bid for more business, supporting clients without breaching internal risk limits or regulatory thresholds.

As the global artificial intelligence buildout accelerates at an unprecedented pace, credit risk insurers have already taken on significantly greater exposure to data center finance, according to a market survey from Willis Towers Watson Plc released in May. Still, there are mounting signs that the insurance industry’s capacity to underwrite much more risk in this specific sector may be drying up, given the sheer scale of global demand from technology giants and infrastructure developers.

Several providers of so-called non-trade credit risk insurance had indicated in the Willis survey that they were approaching sector limits or were already full on data center exposure. This capacity constraint threatens to create a bottleneck just as capital requirements for cutting-edge computing infrastructure reach historic highs.

With global spending on data centers projected by McKinsey & Co to hit $6.7 trillion by 2030, debt financing is expected to play a much bigger role in funding the technological transition. The strain is already starting to show across broader financial and credit markets.

A measure of Meta Platforms Inc. credit risk hit a record high last week as plans to ramp up capital spending reignited fears among investors of more heavy debt issuance. Meanwhile, Citadel’s co-chief investment officer, Pablo Salame, noted that the credit market is getting jammed right now because it hasn’t figured out a good way to effectively offload risks linked to the massive corporate borrowing binge.

Within these ongoing discussions, Barclays is looking for insurers to cover more than 50% of the credit risk on some of the AI-linked facilities, one of the people familiar with the matter said. This ambitious target underscores the bank’s strategy to aggressively shed risk as it navigates the booming demand for data center and computing infrastructure financing.