Morningstar DBRS Assigns Provisional Credit Ratings of (P) BBB With Stable Trends to eStruxture Issuer Limited Partnership

DBRS Limited (Morningstar DBRS) assigned a provisional Issuer Rating of (P) BBB to eStruxture Issuer Limited Partnership (the Issuer) and a provisional credit rating of (P) BBB to the proposed Series 2025-1, Class A-2 Term Notes of $750 million (the Notes). All trends are Stable. The Notes have a 30-year legal maturity with an initial five-year interest-only period followed by a cash sweep of all available cash until the Notes are either refinanced or fully paid off.

KEY CREDIT RATING CONSIDERATIONS
The Notes are serviced by the revenues from contract payments from approximately 390 tenants that occupy a portfolio of six wholesale-focused colocation data centres (the Data Centres or Assets) in three key Canadian markets: Montréal (three centres), Calgary (two centres), and Toronto (one centre). Three of the Data Centres are under fee-simple ownership and three are under long-term site leases. The tenant contracts/customer types consist of approximately 38% hyperscale customer contracts, approximately 34% wholesale customer contracts, and approximately 28% enterprise customer contracts, which represent a healthy mix of customers. The tenants largely comprise cloud providers/Software-as-a-Service firms, technology, telecom, media and entertainment, and finance companies. Morningstar DBRS views the regionally diverse portfolio of the Data Centres with their diverse tenant bases (i.e., customer type and industry) positively. Morningstar DBRS also believes that the presence of hyperscale and wholesale customers contributes positively to the stickiness of the contracts in contrast to an enterprise-only colocation data centre.

The Canadian data centre market, although much smaller in size than markets in the U.S. and primary hubs in Asia and Europe, is expected to continue to grow, driven by data sovereignty concerns, accessibility to reasonably priced power, and continuing growth in overall computing services. Morningstar DBRS expects the tenant contracts to have a high level of stickiness, but notes that tenant occupancy in colocation data centres is subject to more variations in end-market demand than hyperscale single-tenant data centres. As a result, tenant contracts for colocation data centres tend to be shorter, with the initial term typically averaging between one and five years prior to renewal options, and therefore more exposed to the risk of nonrenewal as tenants regularly evaluate their data capacity needs in response to the economic environment of their own businesses. Morningstar DBRS considers recontracting risk to be the key risk for this transaction. The assigned provisional credit ratings depend on assumptions regarding the refinancing of the Notes at the Anticipated Repayment Date (ARD) five years after the closing date. While Morningstar DBRS expects the Notes to be refinanced at the ARD, the principal repayment is subject to material refinancing risk because of the high remaining debt leverage and related exposure to actual interest rates at refinance, which are incorporated into the provisional credit ratings. Further, as three Data Centre sites are leased, there is some potential site-lease renewal risk; however, Morningstar DBRS believes that there is a high likelihood that the site leases will continue until the legal maturity of the debt. As such, in its analysis, Morningstar DBRS assumed that the site leases will continue to be renewed.

CREDIT RATING DRIVERS
A positive credit rating action could occur if the refinancing risk is mitigated or lessens. A credit rating upgrade is not considered likely at this time. A negative credit rating action could occur if there were a sustained material decrease in cash flow, increased refinancing risk, or increased Data Centre site re-leasing risk.

FINANCIAL OUTLOOK
The proposed debt scenario features debt service coverage ratio (DSCR) profiles, as calculated based on Morningstar DBRS' credit rating-case assumptions and cash flow haircuts, with a minimum DSCR of 1.85 times (x) prior to the ARD and a refinance project life coverage ratio (PLCR) of 1.43x determined over the Asset's 30-year deemed economic life (up to 2055) from ARD.

CREDIT RATING RATIONALE
The (P) BBB credit ratings are underpinned by (1) stable projected cash flows from a regionally diverse portfolio of Data Centres with a diverse tenant base (tenant type/industry) and historically low churn to date, (2) the expected resiliency and sticky nature of the revenue stream owing to the critical and strategic nature of services that data centres provide to tenants' business operations, and (3) the strong and favourable debt package to noteholders. Morningstar DBRS notes the debt and security package offers protections to noteholders typical of that expected for a project finance transaction. The primary constraints on the provisional credit ratings include (1) the recontracting risk of each tenant at various intervals, subjecting the Issuer to the risk of either tenants opting out of their contracts or obliging the Issuer to grant concessions as an inducement for tenants to remain; (2) leasehold Data Centres, where approximately 40.5% of revenue comes from Data Centres that are leased as opposed to fee-simple owned, and expose the portfolio to risk of nonrenewal by the landlord when the leases expire; (3) risks related to technical obsolescence or the deterioration of competitive position; (4) refinancing risk; and (5) lower-rated or unrated counterparty entities.

Debt servicing of the Notes will rely on contract payments received by Issuer. The transaction structure includes typical project finance features comprising a comprehensive security package, a six-month interest service reserve account, a cash flow waterfall, and a restricted payment test with a required minimum DSCR of 1.20x.

The proposed debt scenario features DSCR profiles, as calculated based on Morningstar DBRS' credit rating-case assumptions and cash flow haircuts, with a minimum DSCR of around 1.85x prior to the ARD (average 1.92x) and a refinance PLCR of approximately 1.43x determined over the post-ARD period to 2055 (assuming an overall 30-year economic life of the Asset), which incorporates the constraints and challenges of the transaction. In Morningstar DBRS' view, the metrics combined with the soft refinance nature of the debt, in which a failure to refinance does not lead to a default but rather to a cash sweep where all cash after expenses and interest payments are swept to principal, support a (P) BBB credit rating. Morningstar DBRS notes that, in the unlikely event that the debt is not refinanced, cash flows of up to 45% lower than the management case assumptions are still sufficient to fully amortize the debt (PLCR of approximately 1.0x).

The credit ratings are based on information provided by the Issuer to Morningstar DBRS as of May 7, 2025.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196.

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Credit Rating Drivers Factors
In the analysis of the Issuer, the credit rating driver factors listed in the methodology are considered in the order of importance.

(B) Weighting of FRA Factors
In the analysis of the Issuer, the following FRA factors listed in the methodology was considered more important: DSCR and PLCR.

(C) Weighting of the Credit Rating Drivers and the FRA
In the analysis of the Issuer, the FRA carries greater weight than the credit rating drivers.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Essential Digital Infrastructure (March 17, 2025), https://dbrs.morningstar.com/research/450007

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025),
https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

A provisional credit rating is not a final credit rating with respect to the above-mentioned security and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned security are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 600
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577