Troubled Data Center Provider Cyxtera Files For Bankruptcy
Struggling data center operator Cyxtera has filed for bankruptcy, creating a wave of uncertainty for some of the sector’s biggest players.
The Florida-based colocation firm, struggling with looming debt maturities and a tanking stock price, announced over the weekend that it had initiated a “pre-arranged Chapter 11 process.” According to Cyxtera, the bankruptcy proceedings are being initiated in accordance with the restructuring support agreement the company made with its lenders last month.
“Together with our Lenders, we determined that initiating this process is the best path forward for Cyxtera and our stakeholders as we pursue new opportunities for growth,” Cyxtera CEO Nelson Fonseca said in a written statement. “We are confident these steps will enable us to position our business for the long term as we continue serving our customers with innovative services and the highest levels of support.”
Cyxtera, which operates more than 60 data centers across more than 30 markets, indicated that it expects to continue operating all of its facilities and services without interruption and continue paying its employees.
The company said it received a commitment for $200M of debtor-in-possession financing from some of its lenders, with the new financing expected to provide the liquidity needed to maintain its commitments to clients during restructuring. The financing is convertible to an exit facility after the company emerges from the Chapter 11 process.
The Chapter 11 filing continues a turbulent period for one of the world’s major colocation providers, a firm that brought in around $746M in revenue in 2022. Cyxtera has a significant long-term debt burden set to mature this year and has been seeking a buyer for months, despite going public via a special-purpose acquisition company two years ago. The company also planned to convert to a REIT structure last year to raise much-needed cash, although those plans were abandoned.
With debt obligations looming and no buyer materializing, Moody's Investors Service downgraded Cyxtera’s rating in February, declaring the company to be a very high credit risk. The company’s share price plummeted by more than a quarter in the following weeks.
In early May, Cyxtera announced it entered into a restructuring support agreement with the lenders holding the majority of its debt. According to the agreement, the company had to either find a buyer or major investor. Otherwise, it could be compelled to declare bankruptcy, with ownership of Cyxtera potentially transferring to its lenders.
Despite the Chapter 11 filing, Cyxtera said in a statement that the firm is continuing to explore a sale or a significant new investor as it moves through the restructuring process.
The company also said it is “evaluating its data center footprint,” a process with implications that could be felt across the data center sector. The majority of Cyxtera’s data center portfolio is leased rather than owned, and its bankruptcy is creating significant uncertainty for the owners of those facilities. Those owners include some of the data center industry’s biggest players.
One firm with significant exposure is Digital Core REIT, a Singapore-based subsidiary of industry giant Digital Realty Trust. Intended as a vehicle for stabilized assets signed to long-term leases, Digital Core REIT counts Cyxtera as its second-largest tenant.
The company addressed Cyxtera’s bankruptcy in a memo to investors Monday. According to the memo, Cyxtera’s leases represent more than 22% of the REIT’s annualized rent revenue, with the bankrupt provider occupying five California data centers and 4% of a facility in Frankfurt, Germany.
Digital Core REIT indicated Cyxtera had fulfilled its rent obligations through May but that future revenue was uncertain, with Cyxtera yet to decide which leases it will accept or reject during its restructuring.
