Debt Markets Open, Construction to Follow

The credit crunch has had a meaningful impact on data center supply, sidelining many projects that weren’t fully funded prior to the meltdown on Wall Street last fall. But the deep freeze in the credit markets appears to be thawing, as two leading colocation providers announced debt financing this week:

• On Monday Equinix (EQIX) announced plans to issue $250 million in convertible debt to “fund the development of expansion opportunities.” Interest in the offering was strong enough that Equinix wound up selling $325 million in debt, while granting an over-allotment to underwriters for another $48 million.
• On Tuesday Terremark Worldwide (TMRK) announced plans to borrow $400 million through a private debt placement. The company will use the funds to repay $258 million in existing debt and make “capital investments to build out facilities and acquisitions of complementary businesses.”

As we’ve noted, the supply of data center space is getting tight in some key markets. Now that expansion-minded colocation providers are able to raise money through the debt markets, we can expect to see new construction soon. Data center REITs Digital Realty Trust and DuPont Fabros previosuly raised debt financing this spring. These companies, along with Equinix and Terremark, are well known to lenders and have a serious track record in building and filling data centers, and thus good candidates to serve as “icebreakers” for the data center industry in the credit markets. In the short run, this market access will likely extend the “incumbent advantage” for these veteran players in the data center industry, allowing them to build while smaller and newer players must wait for the credit crunch to ease further - a development we predicted back in March 2008.

Terremark Plans $400 Million Debt Sale

Terremark Worldwide (TMRK) is planning to borrow $400 million through a private debt placement, the company said today. The company will offer senior secured notes due to institutional buyers, and plans to use the funds to repay its existing $254 million senior credit facility, $4 million in convertible notes. The remainder will be available to support Terremark’s growth, including “capital investments to build out facilities and acquisitions of complementary businesses.”

The financing could help Terremark jump-start its data center plans in Santa Clara, California. The company recently decided to delay construction in Santa Clara so it could focus its development budget on its booming business at its data fortress in Virginia, the NAP of the Capital Region. The company offered no specifics on how it might use the new additional funds in its expansion plans. But in a recent conference call with analysts, Terremark CEO Manuel Medina said the move to delay construction in Santa Clara was driven by capital conservation.

VMware Buys 5 Percent Stake in Terremark

Virtualization market leader VMware (VMW) will acquire a 5 percent equity stake in managed hosting provider Terremark Worldwide(TMRK) for $20 million, the two companies said today. Under the agreement, VMware will purchase 4 million shares of newly issued Terremark common stock at $5 per share. The investment is likely to raise Terremark’s profile as a provider of virtualization and cloud computing services. Shares of Terremark closed today’s session at $4.80 a share, up 44 cents for a gain of 7.3 percent.

“VMware has worked closely with Terremark for years, and during that time it has distinguished itself as a leader in delivering VMware virtualization, security, and business continuity to customers of all sizes and in all industries,” said Dan Chu, Vice President of Emerging Products and Markets. “This investment in Terremark underscores the importance of this partnership and our belief in their ability to leverage our technologies as part of the VMware vCloud initiative to develop reliable and scalable cloud computing solutions.”

Second Life Adds East Coast Servers

The NAP of the Capital Region in Culpeper, Virginia.

Linden Lab will expand the back-end for its Second Life virtual world to the East Coast, adding server infrastructure at the NAP of the Capital Region, a large data center operated by Terremark Worldwide in Culpeper, Virginia. The colocation agreement will help Second Life extend its 3D virtual world environment to support additional users.

Second Life was launched in 2003, and has become a large hub for user-generated content, with an “in-world” economy with more than $450 million in annual user-to-user transactions. The primary hosting facilities supporting the game are in San Francisco and Oakland. The future growth of Second Life was a factor in Linden’s choice of Terremark and the NAP of the Capital Region, a technology campus designed to eventually house five large data centers.

Terremark Enterprise Cloud to Power USA.gov

The General Service Administration’s USA.gov web site will soon be powered by The Enterprise Cloud, the secure cloud computing platform from Terremark Worldwide (TMRK). The GSA has hired Terremark to provide hosting, storage, and disaster recovery services for the web portal, which serves as the primary web site for information about U.S. federal, state and local government services. Both USA.gov and its Spanish-language companion site, GobiernoUSA.gov, will move to cloud computing, the agency said.

GSA officials said they hope to reduce the cost of managing the web site by 50 percent, and share the agency’s  experience with cloud computing with other government agencies. Members of the Obama administration’s tech team have described the use of cloud computing as “one of the most important transformations the federal government will go through in the next decade,” noting the cost advantages of cloud infrastructure.

The Enterprise Cloud is a managed infrastructure service running on Terremark’s Infinistructure utility computing platform. The service seeks to marry the advantages of Amazon’s utility computing platform - especially scalability and rapid deployment - with enterprise-ready reliability to support mission-critical applications.

Government Deals Boost Terremark Results

Terremark Worldwide (TMRK) has spent years positioning itself as a provider of data center services for the federal government. That has meant enhancing its IT security offerings, building ultra-secure data center space, and wooing major systems integrators and the General Services Administration. Sales cycles have often been lengthy, and revenue uneven.

But Terremark’s strategy is beginning to pay dividends, as the company’s federal revenue grew to $17.9 million in the quarter ending Dec. 31, with record bookings of $8.6 million.That helped the company post revenues of $65.9 million and EBITDA of $18.4 million, a 63 percent year-over-year increase. And with a huge stimulus plan expected to boost government spending, the best may be yet to come.

“While our federal business has grown significantly over the past two years, we believe that we are entering a unique market opportunity,” said Terremark CEO Manuel Medina, who sees the potential to “significantly accelerate the growth of our federal business over the coming quarters.”

Terremark, CSC Eye Fed Clouds on the Horizon

With the Obama administration touting plans to boost the federal government’s use of cloud computing, two specialists in government hosting are expanding their alliance to target this opportunity.

CSC and Terremark Worldwide (TMRK) said Tuesday that they will team to offer cloud computing services to the U.S. government in Terremark’s NAP of the Capital Region in Culpeper, Va. CSC is the anchor tenant in the first phase at the NAP, which was built by Terremark and opened last year. The two companies announced a partnership last May when the Culpeper site opened, and have now expanded that relationship to focus on cloud computing.

“Terremark and CSC look forward to delivering a portfolio of cloud computing resources that will allow our government customers to implement IT services for mission-critical applications in minutes, not days,” said Jamie Dos Santos, president and chief executive officer of Terremark Federal Group. “Instead of buying costly, cumbersome hardware, this offering provides the customer access to a resource pool of processing, storage and networking that can be provisioned on demand, all from Terremark’s state-of-the-art facility in Culpeper, ensuring the security and reliability of the customer applications and data.”

Terremark Begins Second Facility at Culpeper

Terremark Worldwide (TMRK) has begun construction of the second data center facility at its NAP of the Capital Region (NCR) campus in Culpeper, Virginia, the company said today, citing “substantial demand” from Federal government agencies and large enterprise customers.

Terremark said it has contracts in place to fill 30 percent of the second facility, which will share the 50,000 square foot footprint of the initial data center building at the site, which is located about 60 miles south of Washington, DC. The company said it has contracts for 80 percent of the space in the first building, and a “robust pipeline” for its disaster recovery, managed hosting and Enterprise Cloud services.