Key Takeaways
- Private credit is emerging as a key funding source for data center transactions.
- Our rating approach is determined by the transaction's characteristics, relying on our criteria for corporate finance, project finance, and structured finance.
- As private credit investment in data centers expands, we'll adapt our approach to rate these unique transactions.
Innovations across the digital economy are sparking a significant surge in demand for data centers—and private credit is emerging as a key player in financing these projects.
Banks and public debt markets have historically funded digital infrastructure assets through loans or senior unsecured debt issuance in the real estate investment trust and telecom space. The present data center boom is largely being fueled by nonbank financial institutions' more flexible sponsor-driven and securitized capital solutions. Private market players have stepped in as traditional lenders have maxed their data center exposures.
When rating transactions or companies backed by data center assets, S&P Global Ratings utilizes its expansive umbrella of criteria to determine which framework best captures associated credit risks. To date, we primarily use our analytical approaches for corporate finance, project finance, and structured finance (mainly methodologies for asset-backed securities [ABS] and commercial mortgage-backed securities [CMBS]).
We published our first global data center ABS criteria in June 2024 and published a request for comment for our global digital infrastructure corporate ratings methodology on March 10, 2025.
Our ratings approach is largely determined by the structural considerations of the underlying financing vehicle, rather than the asset itself. As demand for investment in this sector expands, we believe that investors may utilize different structuring and advance new financial innovations. Under such evolution, we would likewise continue adapting to use the best analytical approach for these transactions.
The majority of data centers deals that we have rated have been securitizations, alongside some corporate transactions. Within our outstanding portfolio of 70 ratings across the U.S., Europe, and Asia, most data center-backed transactions have been structured as ABS—with 54 ABS ratings representing financing of over $16 billion. Reported debt in rated data center operating companies/REITs totals around $40 billion . As of December 2024, 84% of the outstanding ABS ratings on data center financings are in the 'A' category, and 14% are rated 'BBB.'
For data center securitizations, which are backed by income generated from data center operations, we leverage our structured finance framework.
ABS structuring offers operators a scalable and long-term financing option through a master trust set-up. We most commonly apply our ABS approach in instances where there is zero or mitigated construction risks (as data centers with high exposure to construction risk or managed service by the operator may not be a good fit for securitization) and where other key factors (such as legal risk and bankruptcy-remote status of the issuer) are most consistent with a structured finance rating. Hyperscale data centers in primary markets are particularly attractive to ABS investors because of stable and predictable cash flows from long-term leases with high credit quality tenants, many of which carry public credit ratings.
In our analysis of data centers deals with CMBS features, we assess the likelihood that future cash flow will be sufficient to service the commercial mortgages backing the transaction.
When an operator of data centers issues the debt itself, we apply our corporate ratings criteria. In these instances, the operator (which could be a real estate investment trust, for example) typically doesn't own the majority of the data center's real estate or earns a significant proportion of revenue from managed services. The operator must be generating cash flows from property leases with maturities largely greater than one year.
We could also use our project finance approach to rate a secured data center financing issued by a limited-purpose entity or its holding company. This criteria is most applicable for rating projects with unmitigated construction risks. Other factors leading us to take this approach include legal risk and conditions that aren't consistent with a structured finance rating approach, and significant exposure to operational risk (including where there is no clear replacement counterparty). Our methodology assesses the project's operations and construction phases, factoring in any parent linkages and external influence for both senior and subordinated debt.
Across all approaches, key rating factors include the issuer; construction, operating, renewal, and refinancing risks; the type of debt and its features; collateral; and existing creditor protections. Securing energy, including generation and transmission, is a key requirement for new data centers. Additionally, location is a key strategic consideration for data center deployment—affecting network access and stability, energy supply and prices, geographic location, and the business environment.
New data center development is dependent in certain markets on site availability, global supply chain issues, and power constraints—which support lease rates, occupancy levels, and valuations. Delivery timelines for new properties can exceed two years.
The acceleration and advancement of the facilities that house infrastructure for artificial intelligence, data analytics, and cloud computing is likely to reshape entire sectors, intensify energy usage, and affect decarbonization efforts.
We are closely assessing the ongoing implications of data center growth on key related industries, its potential to influence credit quality, and the established and emerging risks and opportunities that are already shaping the future of the technological revolution.
And as the data center boom progresses, we expect private credit to continue increasing its investment and influence in this digital infrastructure asset class.
Related Research
- Cross-Practice Views On Rating European Digital Infrastructure, Nov. 14, 2024
- Data Centers: Rapid Growth Creates Opportunities And Issues, Oct. 30, 2024
- Credit FAQ: Can Operators Navigate Pitfalls In Asia-Pacific's Data Center Boom?, Sept. 17, 2024
- The Four Main Approaches For Rating Data Center Financings, June 13, 2024
Related Criteria
- Request for Comment: Sector-Specific Corporate Methodology: Global Digital Infrastructure, March 10, 2025
- Rating Methodology And Assumptions For Global CMBS, July 26, 2024
- Data Center Securitizations: Global Methodology And Assumptions, June 13, 2024
- Sector-Specific Corporate Methodology, April 4, 2024
- Corporate Methodology, Jan. 7, 2024
- Project Finance Rating Methodology, Dec. 14, 2022
- Sector-Specific Project Finance Rating Methodology, Dec. 14, 2022
Writer: Molly Mintz
This report does not constitute a rating action.
| Primary Credit Analysts: | Cian Chandler, London + 44 20 7176 3752; ChandlerC@spglobal.com |
| Pablo F Lutereau, Madrid + 34 (914) 233204; pablo.lutereau@spglobal.com | |
| Secondary Contacts: | Pierre Georges, Paris + 33 14 420 6735; pierre.georges@spglobal.com |
| Jie Liang, CFA, New York + 1 (212) 438 8654; jie.liang@spglobal.com | |
| Global Head of Private Markets and Thought Leadership: | Ruth Yang, New York (1) 212-438-2722; ruth.yang2@spglobal.com |
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