Morningstar DBRS Publishes Final Rating and Monitoring Data Center Transactions Methodology

Morningstar DBRS finalized its “Rating and Monitoring Data Center Transactions” methodology (the Methodology). This Methodology presents the criteria for which global data center transaction credit ratings are assigned and/or monitored.

The Methodology applies to nonrecourse debt secured by one or more data center properties. The security or collateral for a data center transaction typically includes (1) the fee-simple/freehold owned data center property and/or the leasehold interest in a data center; (2) an assignment of the tenant leases or service contracts, as applicable, and related payments; and (3) for certain transactions, the data center equipment.

For data centers that involve construction financing without in-place tenant leases, the Morningstar DBRS “Global Methodology for Rating Essential Digital Infrastructure” is typically used. For operating entities (e.g., Corporates) that hold and manage data center real estate assets, the Morningstar DBRS “Global Methodology for Rating Entities in the Real Estate Industry” is typically used.

The Methodology, while similar to the approaches found in Morningstar DBRS’ “North American Single-Asset/Single-Borrower Ratings Methodology” and “European CMBS Rating and Surveillance Methodology,” presents a new approach to the calculation of the Morningstar DBRS Value and also provides new qualitative adjustments to the LTV Sizing Benchmarks. Morningstar DBRS deems these and other changes in the Methodology to be material.

The finalization of the Methodology follows the conclusion of the request for comment period that began on November 16, 2023. Morningstar DBRS received several comments (confidentiality was requested by the respondents) during the request for comment period. The comments were editorial or clarifying in nature and deemed to have no material impact on the Methodology. The Methodology is effective as of January 23, 2024.

All comments received during the request for comment period have been published to the Morningstar DBRS website, except in cases where confidentiality is requested by the respondent.

Notes:
Morningstar DBRS methodologies are publicly available on its website dbrs.morningstar.com under Methodologies & Criteria.

For more information on this methodology, or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.