Data Centers Face Downgrade Risk Amid Local Pushback, S&P Says

Data centers face potential credit rating downgrades due to moratoriums and cancellations driven by public opposition, according to S&P Global Ratings.

Delays due to grid capacity constraints, environmental sustainability concerns and zoning shifts “could increase downward pressure on the creditworthiness of data center projects,” analysts including Chris Mooney wrote in a Oct. 23 report.

Their analysis focused on moratoriums in New York, Texas, Pennsylvania, Illinois, and Arizona, and tracked 146 delayed or canceled projects in the US. About three-quarters of them were tied to local pushback.

The data center boom has sparked widespread public scrutiny in recent months, prompting local governments across 40 states to impose bans, according to the report. Frequently cited concerns include energy costs, water scarcity, air pollution and noise pollution.

The impact on credit grades has so far been minimal, S&P noted. Still, “to the extent that moratoriums, permitting slowdowns or potential reversals meaningfully delay projects, financial penalties in the form of rent credits and even tenant termination rights pose credit risk,” the report said.

Photo: A data center under construction in Eagle Mountain, Utah. Photographer: George Frey/Bloomberg