Data center developers are buying syndicated bank letters of credit to satisfy utilities that now demand collateral before they will study a grid connection, with roughly $10 billion of new facilities under discussion across the industry, Bloomberg reported August 4.
The instrument is a performance letter of credit, a backstop long used in oil and gas. A bank guarantees that if a developer walks away from a site after a utility has already built the substations and transmission lines to serve it, the utility can draw on the credit line instead of recovering the cost from households. For the developer, it substitutes a fee for cash: the money stays available for construction rather than sitting with a utility as a deposit.
Switch established the template. It closed a $2.6 billion syndicated uncommitted performance letter of credit facility in April and expanded it to $3.5 billion on June 10, led by BBVA and Natixis Corporate & Investment Banking. That facility sits alongside a revolving credit facility of more than $6 billion led by TD Securities and Wells Fargo, giving Switch alone nearly $10 billion in liquidity and credit support capacity. Bloomberg put the letter of credit syndicate at 15 lenders and its cost at about 2 percent a year. TeraWulf is negotiating a facility of its own, Blackstone-owned QTS is discussing an expansion of a potential $2 billion arrangement, and Yondr, backed by DigitalBridge and La Caisse, recently closed a three-bank facility arranged by Natixis covering projects in the United States and Europe.
Virginia shows what the guarantees are answering. Under a tariff the State Corporation Commission approved in November 2025, a data center drawing 25 megawatts or more from Dominion Energy’s grid must sign a 14-year contract, pay for at least 85 percent of the transmission and distribution capacity it reserves and 60 percent of its reserved generation whether it uses them or not, and post $1.5 million per megawatt in collateral if it cannot meet the utility’s credit and liquidity tests. A letter of credit is how a developer clears that bar without tying up the cash.
Dominion is carrying about 70 gigawatts of large-load requests, close to three times its all-time system peak. It has since filed a queue plan with the commission that would apply a formal process to loads of roughly 100 megawatts and above and reduce the collateral requirement to $450,000 per megawatt.
The requirement has become a gate on the entire buildout. “Without a letter of credit, most utilities won’t even study your project,” said Carson Kearl, a senior analyst at the energy research firm Enverus. Mario Iacobacci, head of construction and infrastructure advisory for North America at Oxford Economics, said power availability is the single biggest limiting factor on the pace of construction.
The structure also explains the shape of the largest deals now under negotiation. Nvidia’s $250 billion arrangement for OpenAI’s Ohio campus is a guarantee rather than an equity investment, covering lease and debt obligations for a site that does not yet exist. OpenAI has separately raised its planned compute spending to $750 billion through 2030, a figure that depends on interconnections nobody has yet granted.
Who pays when a project fails has become the central political question of the buildout. New York paused permits for large data centers in the first statewide moratorium, and Virginia regulators wrote their collateral rules to keep abandoned infrastructure off residential bills. Dominion’s revised queue plan, including the lower collateral figure, is pending before the State Corporation Commission.
Sources: Bloomberg, Global Trade Review, Switch
–
By the Control Plane Editorial Team