Texas's freeze on new data center approvals has reached Wall Street. Banks led by Morgan Stanley are delaying a plan to sell part of a roughly $15 billion loan for an Anthropic-linked data center in Hubbard, Texas, Bloomberg reported. The delay comes after the state put a hold on new projects while it assesses risks to its power grid. Separately, Aon CEO Greg Case told CNBC that the way AI data centers are clustered could make some of them hard to insure, and so hard to finance.
Together, the two stories show that AI build-outs now depend on more than chips and power. They also depend on permits, bond buyers and insurers.
What happened to the bond sale
According to Bloomberg, lenders led by Morgan Stanley arranged around $15 billion to finance construction of the data center in Hubbard. A Briefs summary of the Bloomberg report says the site is being built by Nexus Data Centers, is leased to Anthropic and has support from Alphabet's Google.
The banks had aimed to refinance part of that package with a high-yield bond sale of $5 billion to $7 billion in September, per Briefs. After Texas paused new project approvals, portions of that sale could be spread out over the next year. The bridge loan has already been funded, so the banks will hold the debt on their balance sheets longer than they planned.
Briefs, summarizing Bloomberg, gives this structure for the financing:
- A $14.2 billion, one-year term facility from Citigroup, Intesa Sanpaolo, Mizuho, Morgan Stanley, Mitsubishi UFJ, Royal Bank of Canada and Banco Santander. Each bank committed around $2 billion, with the option to extend twice for up to an additional year.
- A $1.4 billion revolving credit line with a five-year term, with about $200 million from each bank.
- Ratings in the mid BB area from some major agencies, according to people familiar with the matter.
Anthropic, Google, Citi, Santander and MUFG declined to comment, according to Briefs. Nexus Data Centers and the other banks did not respond right away.
The Texas pause behind it
The hold traces back to a September 21 directive from Governor Greg Abbott. He told the Texas Commission on Environmental Quality (TCEQ) to halt all permits sought by data centers until the Electric Reliability Council of Texas (ERCOT) completes its audit. The directive also said no state agency should move forward with regulatory approvals related to data center development until that information is collected.
"Simply put, Texans must come first," Abbott said in the release. The directive says data center projects must cover all electrical infrastructure costs, report their electricity and water use, and complete the ERCOT audit. Abbott also said he will work with the Legislature next session to eliminate financial incentives for data centers.
That directive followed an earlier step. In August, Abbott told regulators and grid operators to stop moving data center requests to connect to the grid forward, the Texas Tribune reported.
We covered Abbott's criticism of data center developers in August.
In an October 19 letter, TCEQ told Abbott it had "paused the issuance of all permits related to the construction or development of infrastructure directly supporting data centers." Watchdog groups disputed that. Public Citizen and FracTracker said the agency kept approving some data center permits, and the groups said that after they published their findings, TCEQ suspended at least 17 stormwater and wastewater permits for data center projects, Houston Public Media reported. TCEQ said it had not violated the pause. A spokesperson said the stormwater approvals the groups found were automated authorizations, and that the agency had suspended all data center notices of intent and shut its online permit application system. The governor's office also denied that TCEQ had approved any data center permits.
The October 19 reporting date was not an end date. Abbott said the pause will stay in effect until the review is finished, per Briefs.
A tougher bond market
Timing makes the delay harder for the banks. Banks have been moving AI data center loans into bonds to free up room for new lending. But investors are pushing back on higher borrowing costs and more supply. The average risk premium on US high-yield debt hit a 17-month high this month, and several offerings have been withdrawn, according to Briefs.
Data center debt was already under strain before the Texas pause. We covered rising borrowing costs for neocloud operators in our look at why at least 47 large US data center projects stalled this year.
The project matters to Anthropic. Bloomberg notes the company is investing heavily in computing infrastructure ahead of its planned initial public offering. Our earlier explainer on Broadcom's $63 billion Anthropic chip deal shows how much of that build-out also runs on debt.
The insurance warning
Aon's Case raised a separate risk in his CNBC interview. "If you create them and you build them on top of each other, you've created concentration risk in a way in which it makes it more difficult to get insurance," he said. "If it's more difficult to get insurance, that means the financing structure is going to change completely. You can't access the debt markets."
He also said, "Data centers are literally going to measure business interruption at millions of dollars per minute."
Aon reported a record pipeline of data center projects in its third quarter, which helped drive 7% organic revenue growth in its commercial risk business, per CNBC. The broker has set up a $10 billion data center facility and a $2.5 billion energy facility to cover these risks.
Why it matters
Most AI data center news is about chips, power deals and capex totals. These two stories point at the plumbing underneath. A large campus needs permits, a grid connection, lenders willing to hold the debt and insurers willing to cover the equipment. In Texas, the first two are on hold until the state audit ends. In the bond market, buyers are asking for more yield. If insurance capacity also gets tight, as Case warned, the cost of building AI compute goes up even when chips are available.
For Anthropic, the Hubbard loan is already funded, so construction money is in place. The open question is how long the banks carry it, and at what price they can sell it on.
Sources
- Bloomberg: Banks Shelve Bond Sale for Anthropic-Tied Texas Data Center
- Briefs: Banks Stall Anthropic-Linked Debt Sale After Texas Freezes New Projects
- CNBC: Aon CEO warns AI data center insurance risks could threaten financing
- Office of the Texas Governor: Governor Abbott Directs TCEQ To Halt Data Center Permits
- TCEQ: Response to Gov. Abbott Sept. 21 Directive on Data Centers
- Houston Public Media: TCEQ closes online permitting system
- Texas Tribune: Watchdog group criticizes TCEQ for advancing data center permits
