Clarity in Credit

Clarity in Credit

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Clarity in Credit episodes

  • 2026 Wildfires Spread Beyond Physical Climate Risk

    In the latest episode of the Clarity in Credit podcast, Arnaud Journois, Senior Vice President of European Financial Institution Ratings and Jason Graffam, Senior Vice President of Global Sovereign Ratings joined Vitaline Yeterian, Senior Vice President and Sector Lead of European Financial Institution Ratings, to discuss how wildfires and other extreme weather events are translating physical climate risk into financial and credit risk.

    The conversation examines the implications for European banks, insurers, residential mortgage-backed securities (RMBS) transactions, and sovereigns. Our speakers explore how geography, portfolio concentration, insurance protection, and exposure duration influence vulnerability, and why climate models remain useful for identifying where risks may intensify. The discussion highlights potentially greater risks for geographically concentrated institutions and the broader economic consequences for affected regions. The panel concludes that climate risk increasingly operates through established channels of credit, market, and operational risk, making it an integral part of financial analysis and regulatory oversight.

     

    KEY HIGHLIGHTS

    • Recent European wildfires have brought physical climate risk and its financial transmission channels into sharper focus.
    • Climate models cannot predict individual events, but they can help investors identify vulnerable regions and translate physical climate exposure into financial measures such as probability of default and loss given default.
    • Large European banks are generally protected by their scale and diversification across geographies, sectors, and customers whereas smaller, regionally concentrated banks may be more exposed to repeated severe events.
    • Insurers face a more direct transmission channel through claims, although they can adjust premiums and underwriting conditions as risks evolve. For RMBS, physical damage may remain limited where properties benefit from effective protection or mitigation measures.
    • Geography and time horizon are becoming increasingly important in credit analysis, as similar assets can have different risk profiles depending on location, while longer-term exposures provide more time for climate risks to materialise.
    • Sovereigns can become financial shock absorbers when losses are not covered by private insurance, increasing the importance of public-private catastrophe frameworks, resilient infrastructure, and disaster-recovery funding.
    • The broader risk extends beyond direct asset damage to potential disruption of economic activity, infrastructure, employment, and regional attractiveness, which may ultimately weaken borrowers’ ability to service their debt.
    • Overall, climate risk amplifies traditional credit, market, and operational risks, and is becoming more deeply embedded in banks’ risk-management frameworks.

     

    RELATED RESEARCH 

    • “Climate Risk Data Now Available in European Covered Bond Credit Rating and Surveillance Reports”, https://dbrs.morningstar.com/research/488432
    • “The Summer of 2026: Heatwaves, Wildfires, and Droughts--Weather Extremes Are Stacking Up”, https://dbrs.morningstar.com/research/487811
    • “Beyond the Burned Area: What the 2026 Wildfires Mean for French and Spanish RMBS”, https://dbrs.morningstar.com/research/486319
    • “Fire at Europe’s Urban Edge: Wildfires in Spain and France Test Insurers’ Secondary Peril Defences”, https://dbrs.morningstar.com/research/486187
    • “Climate Risk Navigator: The EBA’s 2027 EU-Wide Stress Test Integrates Climate Risk for Banks”, https://dbrs.morningstar.com/research/485154/
    • “Climate Risk Data Now Available in Morningstar DBRS European RMBS Rating Reports”, https://dbrs.morningstar.com/research/482431
    • “A Large Insurance Gap Is Shaping Europe’s Approach to Catastrophe Risk Sharing”, https://dbrs.morningstar.com/insights/commentary/478610
    • “Climate Risk Navigator - European RMBS HEATMap”,
      https://dbrs.morningstar.com/research/480803
    • “Climate Risk Navigator: Physical Climate Risk Signals in Credit--Longitude, Latitude, and Exposure”, https://dbrs.morningstar.com/research/476573
    • “Impact of Storm Nils and Heightened Climate Losses on the French NatCat Framework”, https://dbrs.morningstar.com/research/474479
    • “Climate Risk Navigator: Can Insured Losses Become a Proxy to Climate Costs?”, 
      https://dbrs.morningstar.com/research/473212
    • “Beyond the 2026 Wildfires: Physical Climate Risk and European Banks”, https://dbrs.morningstar.com/insights/commentary/490124

    Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/insights/newsletters/488699/

    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

    12 min
  • Telecoms - Enabling the Next Wave of AI Growth

    In the latest episode of our “Clarity in Credit” podcast series, Aarti Magan, Senior Vice President, Corporate Ratings, and Eric Chan, Vice President, Global Non-Bank Financial Institutions, discuss the growing role of telecom operators in the AI ecosystem with Scott Rattee, Senior Vice President and Sector Lead, Corporate Ratings. 

    In this episode, we examine how telecom providers are evolving beyond their traditional role as connectivity providers to become critical enablers of AI infrastructure, data movement, edge computing, and AI-powered services. We also explore the emerging revenue opportunities associated with data center growth and enterprise AI solutions, investment requirements, and credit considerations associated with participating in this rapidly developing ecosystem.

    KEY HIGHLIGHTS:

    • Telecom operators are evolving beyond connectivity providers to become key enablers of AI infrastructure, data movement, edge computing, and AI-powered services.
    • Global data center capacity is expected to grow to approximately 200 gigawatts by 2030, driven by rising AI and cloud-computing demand.
    • Facility-based telecom operators are well positioned to capitalize on both data center expansion and enterprise AI solutions given their network expertise and customer relationships.
    • While AI-related investments may pressure credit metrics in the near term, successful execution could enhance competitive positioning, support earnings growth, and be credit positive over the longer term.

      • By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

      10 min
    • Game of Thrones in Italy, All Eyes on Siena

      In the latest episode of our “Clarity in Credit” podcast series, Marcos Alvarez, Managing Director of Global Financial Institution Ratings, is joined by Nicola De Caro and Arnaud Journois from the European Financial Institution Ratings team as well as Mario De Cicco from the Global Insurance & Pension Ratings team to discuss the rapidly evolving consolidation landscape in the Italian banking sector, with Banca Monte dei Paschi di Siena SpA (BMPS) at the center of competing strategic moves. 

      The speakers unpack Banco BPM SpA’s (Banco BPM) proposed merger of equals, Intesa Sanpaolo SpA’s (Intesa) unsolicited bid, and the broader role of players like Unipol Assicurazioni S.p.A. (Unipol) and BPER Banca S.p.A. (BPER). Our analysts explore the strategic rationale behind these transactions; the execution risks; and the implications for competition, market structure, and credit profiles. They also assess how this new wave of consolidation could reshape Italian banking and potentially set a precedent for broader European banking consolidation.

      KEY HIGHLIGHTS

      • Recent developments around BMPS signal more than isolated deal activity, pointing instead to a renewed and more competitive phase of consolidation in Italian banking, where institutions are vying to become lead consolidators.
      • Banco BPM’s proposed merger of equals aims to create a strong domestic banking group with meaningful scale and synergies, though execution challenges remain significant, particularly around governance and integration.
      • Intesa’s EUR 30.6 billion unsolicited bid represents a decisive and strategic move, reinforcing its leadership position while accelerating consolidation trends both in Italy and potentially across the Eurozone.
      • Unipol plays a pivotal role by enabling deal feasibility through the acquisition of carved-out assets while leveraging the transaction to strengthen its bancassurance model and expand its influence via BPER.
      • While the industrial logic and expected synergies are compelling, execution risk remains the key credit consideration, given the size, complexity, and multi-year timeline of these transactions.
      • From a credit perspective, the transactions are broadly viewed as positive for key players like Intesa and Unipol, supported by stronger scale, diversification, and earnings capacity, though outcomes will ultimately depend on successful integration and evolving deal structures.
      • Overall, the Italian banking sector is entering this phase from a position of strength, but outcomes remain uncertain as the situation continues to evolve.

        • RELATED RESEARCH 

        • “Consolidation Heats Up in Italy Around BMPS Following Banco BPM's Proposal and Intesa's Bid,” https://dbrs.morningstar.com/research/482584
        • “Game of Thrones in Italy: Intesa Moves on MPS Amid Rival Bid Talks with Banco BPM; Unipol to Step In,” https://dbrs.morningstar.com/research/482587

          • Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/482754

          By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

          15 min
        • Middle East Conflict and the Uneven Effects on Energy in Asia

          In the latest episode of our Clarity in Credit podcast series, Eric Chan, Vice President of Global Non-Bank Financial Institutions, and Marcos Alvarez, Managing Director of Global Financial Institution Ratings, discuss the impact of the conflict in the Middle East on Asian sovereigns with Rohini Malkani, Senior Vice President of Global Sovereign Ratings. 

          The escalation in the Middle East has exposed Asia's dependence on imported hydrocarbons, delivering price shocks and significant physical supply disruptions. Our analysts explore the effects currently playing out across the different regions in Asia, the implementation of varying contingency measures, and the immediate and longer-term implications of a protracted conflict.

          KEY HIGHLIGHTS

          • With approximately one-fifth of global crude oil and liquified natural gas supply currently constrained at the Strait of Hormuz, and an estimated 83% of that destined for Asian buyers, Asia is not simply a price-taker at this point, but also the region most directly exposed to physical supply disruptions.
          • Exposure is nonetheless not uniform across the region. For example, North Asia has strong crude reserve buffers, while parts of South and Southeast Asia remain more exposed given limited buffers and fiscal space to absorb sustained energy subsidies and/or higher import costs.
          • Contingency measures have varied across countries in managing supply shortfalls and higher import costs. Nevertheless, the current price and supply shock are weighing on growth, raising inflation risks, and complicating monetary-fiscal trade-offs. 
          • Beyond the direct energy shock, higher inputs such as freight, fertilizer, industrial gases, and petrochemicals are also raising production risks across industries and creating broader supply-chain bottlenecks.

            • RELATED RESEARCH 

            • Asia: Middle East Conflict Deepens Energy and Logistics Shock With Uneven Spillovers (March 30, 2026), https://dbrs.morningstar.com/research/477798
            • Middle East Conflict Delivers an Energy and Maritime Logistics Shock to Asia (March 4, 2026), https://dbrs.morningstar.com/research/475676

              • Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/480642.

              By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

              11 min
            • A Credit Perspective on Middle Market Corporate Borrowers

              In the latest episode of our “Clarity in Credit” podcast series, Aarti Magan, Senior Vice President, Corporate Ratings and Jason Graffam, Senior Vice President, Sector Lead, Global Sovereign Ratings, discuss Middle Market Corporate Borrowers with Michael Dimler, Senior Vice President, Private Corporate Credit.

               

              The health of private credit has become a hot button topic for investors. In this episode, our analysts examine this market through the lens of our credit rating surveillance on middle market corporate borrowers. They explore the challenges facing the sector and how they are shaping the risk appetite of private credit lenders. They also discuss how artificial intelligence (AI)-related disruption and broader technological changes are influencing the credit profiles and ratings of these borrowers.

               

              KEY HIGHLIGHTS

              • The middle market corporate borrowers that we currently rate have a median EBITDA of USD 50 million and an average credit rating of “B.”
              • Middle market private credit fundamentals have weakened, reflecting margin pressure, uneven revenue growth, and higher debt servicing costs.
              • Downgrades continue to outpace upgrades, driven by operating deterioration at the weaker end of the portfolio and limited upward credit rating migration overall.
              • Recent fund-level liquidity pressures and defaults have affected the risk appetites of private credit lenders and increased the competition for high-quality middle market corporate borrowers with strong credit fundamentals and clear sponsor support from top-tier private equity firms.
              • While middle market borrowers in the software sector are facing rising long-term AI disruption risk, the credit profiles in the sector remain supported by entrenched customer relationships and high switching costs.

                • By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                10 min
              • From Hub to Hazard - War in Iran and the Shifting Map of Middle East Aviation and Sovereigns

                In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Eric Chan, Vice President of Global Non-Bank Financial Institutions, discuss the repercussions of the war in Iran on sovereigns and airlines with Adriana Alvarado, Senior Vice President of Global Financial Institution and Sovereign Ratings and Rohit Kumar, Vice President of Corporate Ratings.

                The recent escalation of conflict in the Middle East, including widespread airspace closures and disruptions around the Strait of Hormuz, is reshaping sovereign and corporate risk across the region. Our analysts look at the immediate and longer‑term implications for regional economies and global aviation and discuss how the different sectors are navigating this evolving landscape.

                KEY HIGHLIGHTS

                • Gulf sovereigns face heightened geopolitical and economic uncertainty, with impacts differing across oil‑dependent and more diversified economies.
                • Airspace closures across Iran, Iraq, the Gulf states, and Israel triggered severe aviation disruptions, particularly for Middle Eastern carriers whose operations temporarily came to a halt.
                • Airlines outside the region have been more resilient, as Middle Eastern routes represent a smaller share of their networks, though rerouting challenges persist.
                • With Russian airspace already restricted, additional Middle Eastern closures create a “double bottleneck,” leading to longer flight times, higher fuel burn, and rising operating costs.
                • Fuel prices represent the biggest global risk: sustained increases in oil and jet fuel costs could pressure profitability, especially for airlines with limited hedging.
                • Longer‑term credit implications vary, with Gulf sovereigns relying on substantial financial buffers while airlines’ resilience depends on hedging strategies, liquidity strength, and revenue diversification.

                  • RELATED RESEARCH 

                  • Most Global Airlines Can Withstand Direct Impact From Middle East Airspace Closure, but Fuel Price Poses Risk, (March 2, 2026), https://dbrs.morningstar.com/research/475508 
                  • Conflict in the Middle East Brings Economic Disruptions for the Gulf Countries and Beyond (March 2, 2026),  https://dbrs.morningstar.com/research/475494

                    • Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/475929.

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    10 min
                  • BDC Turbulence: Diverging Credit Implications

                    In the latest episode of our “Clarity in Credit” podcast series, Chloe Blais, Vice President, European Corporate Ratings, Diversified Industries & Energy, and Eric Chan, Vice President, Global Non-Bank Financial Institutions, discuss business development companies (BDCs) with Watson Tanlamai, Vice President, Global Non-Bank Financial Institutions. 

                    The story of private credit has been years in the making, with this faction of the market experiencing a phenomenal surge in growth over the past several years. The BDC sector--as a subset of private credit--has recently garnered more than its fair share of attention from the press. In this episode, we discuss the ins and outs of this particular investment vehicle, the current industry landscape, and our outlook for this sector.

                    KEY HIGHLIGHTS

                    • BDCs are vehicles that invest in a diversified portfolio of debt of both sponsor-backed and non-sponsored-backed U.S. companies, often with expertise in a certain area of the market. BDCs may be traded on public stock exchanges or non-traded.
                    • Despite broad macroeconomic challenges, BDC portfolio credit performance has been relatively strong over the past few years with notable growth in the sector’s assets under management.
                    • Expectations for lower interest rates in 2026 may adversely affect the sector’s earnings; however, this may be balanced by floating-rate funding costs and the rationalizing of dividend payments to BDC shareholders.
                    • BDCs generally maintain diversified portfolios with smaller individual position sizes, which should insulate larger players from industry-specific risks, such as credit risk exposure to the software industry because of ongoing artificial intelligence shocks.
                    • The prevalence of payment-in-kind (PIK) interest deferral mechanisms offered by BDCs is discussed, including how the structure and relative quantum on PIK features may affect asset quality.
                    • Overall, a divergence in the credit profiles of BDCs is expected. Well-performing, large BDCs are expected to exhibit more resilience relative to smaller BDCs, which may be more susceptible to macroeconomic headwinds because of their comparatively lower operational flexibility. 

                    RELATED RESEARCH 

                    • “2026 BDC Sector Outlook Neutral: Naughty or Nice List Lengthens,” https://dbrs.morningstar.com/research/469393

                    Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/473725.

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    11 min
                  • Venezuela - What’s Next for the Oil Industry?

                    In the latest episode of our “Clarity in Credit” podcast series, Jason Graffam, Senior Vice President, Sector Lead of Global Sovereign Ratings and Chloe Blais, Vice President of European Corporate Ratings, Diversified Industries & Energy, are joined by Andrew O'Conor, Senior Vice President of Energy & Natural Resources Ratings to discuss the impact U.S. involvement in Venezuelan politics on the global oil industry.

                    Following the U.S. military’s action in early January 2026 to oust Venezuelan President Nicolás Maduro on the global oil industry, it appears the U.S. government’s objective in Venezuela--among other stated reasons--is to revitalize the country's vast oil resources with the help of and investment by American energy companies. In this episode of “Clarity in Credit”, we discuss the medium-term implications of the U.S. intervention in Venezuela on the country's energy sector, the prospects for greater investment in the country, and the global oil industry.

                    KEY HIGHLIGHTS

                    • The U.S. military action in Venezuela that toppled Maduro has little immediate impact on the current global balance between crude oil supply and demand and, therefore, on oil prices.
                    • It will likely take several years and large investments to meaningfully resuscitate the Venezuelan oil industry. In addition, the country’s current political stability, its legal framework, and the current low oil price environment are unfavorable conditions for most western companies and do not incentivize the large investments required.
                    • The arrest of Maduro has no immediate credit rating impact on the oil and gas producers that we rate. However, in the unlikely scenario that the oil price significantly declines for six to 12 months because of a severe weakening in the economic environment, most of our rated issuers would be well positioned, financially and operationally, to weather such a downturn.

                    RELATED RESEARCH 

                    • “Maduro's Ouster Unlikely to Have Significant Near-Term Impact on Oil Prices,” https://dbrs.morningstar.com/research/471154
                    • “The Promise and Peril of U.S. Intervention in Venezuela,” https://dbrs.morningstar.com/research/471477
                    • “Venezuela and the Shifting Map of Insurance Risks in the Caribbean,” https://dbrs.morningstar.com/research/471250
                    • “Maduro's Exit: Very Limited Direct Exposures for International Banks With Potential Opportunities in the Long Term,” https://dbrs.morningstar.com/research/471183

                    Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter:https://dbrs.morningstar.com/research/471419.

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    11 min
                  • European Banks 2026 Outlook

                    In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Jason Graffam, Senior Vice President, Sector Lead, Global Sovereign Ratings are joined by Sonja Forster, Senior Vice President, European Financial Institution Ratings to discuss the European banking sector.

                    The results for European banks over the last few years have been very good. This is in large part thanks to the higher interest rate environment, which has helped to support bank earnings. At the same time, higher rates have not resulted in a deterioration in asset quality. The year 2025 looks set to close for European banks as another year with strong profits, even though banks have faced some earnings pressure as interest rates gradually decline and from additional capital requirements. The open question for 2026 is how the European banking sector performs as earnings retreat from their recent peak. 

                    KEY HIGHLIGHTS

                    • European banks’ profitability has declined from recent highs but remains strong. Interest rates appear to have settled, and along with the favorable operating environment in many European countries, bank earnings should stabilize in 2026.
                    • The benefits to bank earnings from the decline in the cost of risk in recent years are set to decline, but broadly speaking, asset quality for recent vintages has remained remarkably strong in most European countries. We expect no major deterioration in asset quality.
                    • European banks remain well capitalized, despite the noticeable impact on individual banks’ capital ratios from the introduction of CRR3.
                    • Many banks have started to tap their capital buffers by paying out higher dividends and increasing investments. Many large banks are making significant investments in Artificial Intelligence, primarily to keep costs down.
                    • M&A activity has also gained momentum, principally from bolt-on acquisitions. Larger-scale acquisitions are more complicated and have encountered political opposition.
                    • There is still a positive bias in credit ratings for European banks, although less than in the last few years.

                    RELATED CONTENT: 

                    • Commentary: 2026 European Banking Sector Outlook Neutral: A Goldilocks Year Ahead? https://dbrs.morningstar.com/research/467824

                    Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/469313/

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    14 min
                  • Power Hungry -- North American Utilities Invest for AI Boom

                    In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Chloe Blais, Vice President of European Corporate Ratings, Diversified Industries & Energy, are joined by Bukola Folashakin, Assistant Vice President of Energy & Natural Resources Ratings to discuss data centers.

                    With more data centers becoming operational, electric utility companies are experiencing an unprecedented surge in demand across many North American service areas. Investment in electricity infrastructure is projected to be $1.4 trillion from 2025 to 2030, double the amount invested in the prior 10 years.

                    KEY HIGHLIGHTS:

                    • The U.S. is projected to lead data center electricity consumption until 2030, and demand growth will be led by states that have emerged as data center hubs. Utility companies in Virginia, Ohio, Arizona, and California are ahead of others in planning for the additional demand for power. 
                    • However, data centers aren’t the only disruptors in the sector. Demand for power is also increasing from electric vehicles and charging stations, public transit systems, heating and cooling infrastructures, as well as manufacturing and agricultural industries. Growing demand raises concerns around supply adequacy in extreme weather scenarios. 
                    • Regulated utility companies have a dedicated franchise area of operation. Regulators use several mechanisms to ensure the reliable supply of electricity at a fair rate for all consumers. Among others, these mechanisms include setting the allowed return that utility companies can earn on the equity portion of their investments and ensuring recovery of their capital expenditures. 
                    • Uncertainty about the extent of the demand for power poses several challenges to utility companies, including potential infrastructure overdevelopment and delays in cost recovery. Further, funding gaps could increase as traditional funding sources are inadequate to meet future investment needs. In addition, regulatory lags in approvals for rate increases could exacerbate pressure on the overall financial and credit resiliency of these companies. 
                    • Managing capital expenditure is critical from a credit risk perspective. Capital investment on a large scale could have an adverse impact on the credit profiles of utility companies if such investments are not supported by adequate equity injections to maintain regulator approved capital structure or if the capital program is prolonged and large relative to the size of these companies

                    RELATED CONTENT: 

                    • Commentary: Power Hungry Data Centers Raise Capex Forecasts for North American Utilities: https://dbrs.morningstar.com/research/465430

                    Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/458585.

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    By downloading or listening to this podcast, you are agreeing to the Morningstar DBRS disclaimer and legal terms and conditions found at https://dbrs.morningstar.com/about/disclaimer and https://dbrs.morningstar.com/about/termsAndConditions, including that the information provided is not investment, financial or other advice. Morningstar DBRS will not be liable for losses arising from your use of the information. Please note that the content of this podcast is intended for European, North American and UK audiences only.

                    12 min

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                  Join experts from Morningstar DBRS in conversations that go beyond the credit ratings and features in-depth analysis of the latest research, current events, and key credit considerations facing…