Companies raising funds for hyperscale data centers are increasingly turning to the leveraged loan market, as collateralizing such deals appears to be the latest phase in AI infrastructure financing. Since April, issuers including CoreWeave, Lambda, Crusoe Energy Systems and Volta Infrastructure Holdings have launched data-center expansion loans. Institutional leveraged loan issuance backing data center infrastructure totals $13.2 billion year to date.
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AI spending is running well ahead of revenue, so more companies are borrowing to build data centers and buy chips, and bond investors are growing nervous about whether and when they will see a return. CoreWeave's five-year credit default swap (CDS) spread, the cost of insuring its debt against default, hit a record of about 1,195 basis points, meaning $119,500 a year to insure $1 million of debt, and some of its bonds traded near 80% of face value with the October 2031 bond yielding 16%. Oracle's five-year CDS neared 300 basis points, a company record, after S&P Global cut its rating to one notch above junk. Bonds tied to Meta's Hyperion data-center project fell to around 91 cents on the dollar, and SoftBank's five-year CDS rose 24 basis points to 424. The article adds that oil-driven inflation has pushed the 10-year Treasury yield to roughly 5%, making borrowing costlier, while it remains unclear whether these projects will generate enough revenue to cover their costs.
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