Credit ratings may not seem exciting. But profits are definitely exciting. That’s why data center developer CyrusOne is touting its new investment grade credit rating.
An investment grade rating allows companies to borrow money at more attractive rates. In a capital-intensive business like the data center sector, lower borrowing costs make it cheaper to build data centers.
“The improved pricing on our debt further enhances the profitability of the business,” said Diane Morefield, chief financial officer of CyrusOne, who said the rating reinforces the strong underlying fundamentals for the data center business.
CyrusOne becomes the third public data center REIT (real estate investment trust) to achieve investment grade, joining Digital Realty and Equinix. The upgrade is welcome news for CyrusOne, arriving in a period of active competition in the data center business. As more large investors build data center platforms, the cost of capital is an increasingly important competitive differentiator, allowing companies that have low borrowing costs to build new capacity at a lower cost.
This cost advantage enables providers to earn better returns than rivals with higher borrowing costs, or adjust their pricing to win more deals. This is a particular concern for public REITs, which are increasingly battling for deals with private players with deep pockets.
CyrusOne announced Wednesday that Fitch Ratings has initiated coverage of CyrusOne with a senior unsecured rating of ‘”BBB-” which is investment grade. S&P Global Ratings had previously upgraded its issue-level credit ratings to investment grade (‘BBB-’) in September 2018, and with the second investment grade rating CyrusOne is now investment grade index eligible, allowing the company to borrow at lower interest rates.
“We are thrilled to have received a second investment grade credit rating as becoming an investment grade issuer has been a long-standing objective for the company,” said Gary Wojtaszek, president and chief executive officer of CyrusOne. “There is tremendous strategic value in always having access to capital, which is particularly important to our hyperscale customers as they are growing at very high rates and need partners that can grow with them.”
“Becoming an investment grade issuer has been a long-standing objective for the company.”
CyrusOne CEO Gary Wojtaszek
CyrusOne has been a leader in the rapid growth of the data center industry, advancing techniques for building at speed and scale. The company is on the forefront of a trend in which the world’s largest hyperscale Internet companies have begun leasing cloud capacity from data center developers, rather than building their own server farms.
CyrusOne says it can deploy new data center capacity at a cost of $6.3 million per megawatt, making it one of the most efficient players in data center development. This combination of speed and affordability has allowed the company to compete aggressively with rivals such as Digital Realty, CoreSite, RagingWire and Iron Mountain for large “super-wholesale” leasing deals with hyperscale computing companies.
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The company was founded in 2000 by Houston entrepreneur David Ferdman, and quickly found its niche specializing in high-density colocation services for energy companies in Houston and Dallas. The company expanded across Texas after it was acquired in 2007 by private equity firm ABRY Partners. In 2010, Cincinnati Bell paid $525 million to buy CyrusOne, which was then spun off in an IPO in January 2013.
In recent weeks, CyrusOne has been the focus of takeover rumors, pushing shares to an all-time high. Shares are trading today at about $77 a share.