Goldman Sachs Group Inc. is exploring investor interest for a junk bond of approximately $1.15 billion to fund the construction of a data center. This data center will be leased to CoreWeave Inc., an AI cloud firm, and is part of a trend of borrowing tied to the company as it seeks to capitalize on the artificial intelligence boom. The offering is anticipated to enter the market in September, though discussions are ongoing and plans could change. This move comes as AI companies require significant computing power, necessitating large buildings to house the infrastructure, and funding these developments is becoming more complex.
The project, known as Digital Drive, is situated near Richmond, Virginia. It is being developed by American Real Estate Partners' PowerHouse Data Centers and Chirisa Technology Parks, with equity contributions from Blue Owl Capital funds. CoreWeave has secured long-term leases for the space, which are crucial for making the bond sale viable, as they offer lenders a consistent stream of rental income. However, CoreWeave's weak credit rating elevates borrowing costs compared to debt associated with top-tier cloud providers like Alphabet, reflecting the speculative grade nature of these bonds where repayment primarily relies on CoreWeave's lease, rather than an investment-grade technology balance sheet.
This financing effort takes place in an environment where investors have become more cautious and are demanding higher returns on AI infrastructure debt, following a surge of offerings earlier this year. For instance, last month, Galaxy Digital, led by Mike Novogratz, had to offer a 10% yield to attract buyers for its $3.5 billion bond product, which was also backed by a CoreWeave lease. This indicates a steeper price for borrowing in the AI infrastructure sector. The outcome of Goldman's $1.15 billion sale will be a key indicator for the market's current rhythm regarding AI-related financing, with potential implications for future borrowing costs across the sector.
