Is it becoming difficult for AI to "leverage up"? CoreWeave's related data center bonds face market indifference
The financing boom for AI infrastructure shows signs of cooling. A $2.35 billion bond issued by Applied Digital for data center construction has encountered a lukewarm market response, with subscription levels falling short of expectations. Unlike the previous hot deals supported by Google, this bond has made investors cautious due to the speculative-grade credit rating of its main tenant CoreWeave, resulting in a significant increase in financing costs
The financing boom for artificial intelligence infrastructure construction is facing a test. A large bond issuance for a data center related to the AI newcomer CoreWeave has failed to garner enthusiastic market support due to its high risk exposure.
According to Bloomberg, citing informed sources, as of Wednesday afternoon, Applied Digital has received only about $2 billion in orders for its $2.35 billion junk bond issuance. This transaction, expected to be completed on Thursday, stands in stark contrast to the recent frenzy surrounding similar deals.
The core reason for the lukewarm market response is that the main tenant of the data center is the speculative-grade CoreWeave, lacking the "credit endorsement" provided by Alphabet, Google's parent company, in previous transactions involving TeraWulf and Cipher Mining. This directly leads to Applied Digital facing higher financing costs, with bond yields expected to be around 8.5%.
Investors' cautious attitude is directly reflected in the pricing. According to informed sources, the bond yield for Applied Digital's issuance is in the 8.5% range, significantly higher than the recent two highly sought-after similar transactions.
In comparison, the bonds issued by TeraWulf and Cipher Mining had coupon rates of 7.75% and 7.125%, respectively, and both traded above par after listing, with actual yields falling below 7%. Although the ratings of these three bonds are similar, the market pricing is markedly different.
Lack of Major "Endorsement" Becomes Key
Previously, TeraWulf's $3.2 billion bond received over $10 billion in orders, while Cipher Mining's $1.4 billion bond attracted over $7 billion in subscriptions.
Reports indicate that the success of these two transactions was largely due to the implicit support provided by Alphabet, which gave investors great confidence.
In contrast, Applied Digital's transaction lacks such strong counterparty credit assurance, as its main tenant CoreWeave has a speculative-grade credit rating, which has become the core concern for investors.
S&P Global Ratings noted in a report that Applied Digital is "highly dependent on CoreWeave," which is expected to contribute about two-thirds of its contract revenue
