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Data Centres – a Project Finance View

Data centres are rapidly becoming an essential component of digital infrastructure around the world, and there is increasing interest in data centre financings from market participants. DBRS Morningstar rates data centres under several different methodologies depending on the characteristics of the deal structure and the underlying data centre assets. This commentary discusses data centres from the credit perspective of project finance. Project finance transactions are characterized by long-term contracted revenues from a single high-quality counterparty, and data centres that are wholesale, enterprise, or hyperscale with a single tenant whose lease payments are used to underwrite the debt issued by the data centre operator are candidates to be rated under DBRS Morningstar’s Rating Project Finance methodology. Key aspects that the methodology uses to assess data centre credits include lease renewal risk (where optional lease extension terms are present within the term of the debt), refinance risk (in transactions that feature a soft refinance within the debt term), counterparty credit risk, lease structure and terms, and technology risk.