Data centers face potential credit rating downgrades as moratoriums and project cancellations driven by public opposition spread, according to S&P Global Ratings. Delays caused by grid capacity constraints, environmental sustainability concerns and zoning changes "could increase downward pressure on the creditworthiness of data center projects," analysts including Chris Mooney wrote in a report released Friday.
The 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 drawn widespread public scrutiny in recent months, prompting local governments across 40 states to impose bans, the report said. Frequently cited concerns include energy costs, water scarcity, air pollution and noise pollution.
The impact on credit ratings has so far been minimal, S&P noted. However, "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.
The warning highlights how community opposition, once a local planning issue, can translate into financial risk for developers and their lenders as the sector's rapid expansion meets resistance from the communities where facilities are built.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing