Sam Altman
(Bloomberg) – Just as industry executives and analysts are questioning whether new technologies are inflated another bubble, credit investors are pouring billions into artificial intelligence investments.
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JPMorgan Chase & Co. and Mitsubishi UFJ Financial Group are supporting plans to build a large data center campus for Vantage Data Center, leading the sale of more than $22 billion in loans. Facebook's parent, Meta Platforms Inc., has won $29 billion from Pacific Investment Management Co. and Blue Owl Capital Inc. for its large data centers in rural Louisiana.
And many of these transactions are coming. Openai alone estimates that over time, trillions of dollars will be needed to spend on the infrastructure needed to develop and operate artificial intelligence services.
At the same time, major players in the industry have acknowledged that there is probably a pain ahead for AI investors. Openai CEO Sam Altman this week said this week that there are similarities between the current investment frenzy in artificial intelligence and the DOT-COM bubble in the late 1990s. When discussing the startup evaluation, he said, “Someone is going to get burned there.” The Massachusetts Institute of Technology Initiative also published a report showing that 95% of the generation AI projects in the corporate world did not benefit.
Overall, it's enough to make the credit watcher nervous.
“We're committed to providing a great deal of support for our customers,” said Daniel Sorid, head of US investment grade credit strategy at Citigroup. “So the AI boom certainly raises questions about sustainability in the medium term.”
The early build-out of the infrastructure required to train and power the most advanced AI models was primarily funded by AI companies themselves, including high-tech giants like Alphabet Inc.'s Google and Meta Platforms Inc., but recently there has been an increasing number of money from bond investors and private credit lenders.
Exposures here come in many shapes and sizes with varying risks. A recent analysis by Bloomberg Intelligence shows that many large tech companies (so-called AI hyperschools) are paying for new infrastructure with gold-plated corporate debt.
Today, much of the debt funds come from the private credit market.
“Artificial intelligence private credit funds have been running low-end at around $50 billion over the last three quarters. Even without considering Meta and Vantage mega-trading, they are already offering two or three times what the open market has to offer.”
And many new computing hubs are funded not through corporate entities but through commercial mortgage-backed securities that are tied to payments generated by complexes. The amount of CMB supported by AI infrastructure has already increased 30% from the total year in 2024 to $15.6 billion.
On August 8, Sorid and Citi colleagues released a report focusing on the specific risks of utility companies that have boosted borrowing to build the electrical infrastructure needed to supply electricity-hungry data centers. They and other analysts are generally concerned about spending a lot of money right now before AI projects show their ability to generate revenue in the long term.
“Datacenter trading is 20-30 years of tenor funding for technology that doesn't even know what it will look like in five years,” says Ruth Yang, global head of private market analytics at S&P Global Ratings. “We are conservative in assessing future cash flows, because we don't know what they will look like. There is no historical basis.”
UBS Group says stress is beginning to emerge in the rise of kind loan payments to technology-oriented private credit lenders. According to UBS, in the second quarter, BDCS' PIK revenue reached its highest level since 2020, rising to 6%.
However, it is unlikely that the money fire hose will stop soon.
“We are pleased to announce that we are committed to providing a range of services to our customers,” said John Medina, senior vice president of Moody's Global Projects and Infrastructure Finance Team. “They are looking at these hyperscalars as the next long-term infrastructure asset, as they need this massive capital.”
Review week
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JPMorgan Chase & Co. and Mitsubishi UFJ Financial Group are helping to plan to build a large data center campus for Vantage Data Center, leading the loans of more than $22 billion.
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HPS Investment Partners and lenders' groups, including Apollo Global Management Inc., have suspended more than $2.2 billion in acquisition obligations that have remained on the bank's balance sheet since the Trump administration's tariff proposals destroyed the market earlier this year.
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China Vanke Co. reported that it highlights the ongoing challenges even after the developer received a financial lifeline from deep Shenzhen's hometown government.
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Goldman Sachs Group Inc. has committed a $6 billion debt financing package to support the acquisition of Thoma Bravo's human resources software provider Dayforce Inc.
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Eli Lilly & Co. priced the largest ever sale of US investment-grade debt in a transaction that includes 40-year bonds.
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Weeknd has raised about $1 billion in funding, backed by some of his musical rights. In one scenario considered, the singer uses shares in the music publishing rights as collateral and uses the share of the song's master recording.
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Banks and direct lenders are being debated to refinance the Grid Iron Capital Support Leaf House debt as private equity companies hold their assets longer.
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Deutsche Pfandbriefbank AG is working on a critical risk transfer that debuts related to approximately $2 billion in US commercial real estate loans.
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Rent the Runway Inc. will hand over control of the company as part of its plans to cut debt and grow after the residual effects of the Covid-19 pandemic have pushed the company to the brink of bankruptcy.
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Sarepta Therapeutics Inc. has signed a deal with investors to restructure its approximately $700 million in debt, giving the company a reprieve as it recovers from a gene therapy dispute.
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Medical transport company Modivcare Inc. filed for bankruptcy to cut its $1.1 billion in debt after federal government's cuts to threaten to squeeze future cash flows.
On the move
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Natixis SA has appointed Chris Agathangelou to lead the French lender Global Bond Syndication Desk. Agatangerow recently worked as a senior financial advisor at Arantra.
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The Toronto Dominion Bank has hired Mukulchabra from rival BMO Capital Markets as head of secured mortgage obligations as Canadian lenders continue to employ enthusiastically to strengthen their fixed income businesses.
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Bofa Securities Inc. has recruited Sandeep Tharian, Head of Regional Credit Sales at Barclays PLC, as part of a recent new recruiting by an Asian company. In his new role, Tallian will become the head of Singapore-based Asia-Pacific Credit Sales.
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Two remaining traders at New York, Georges Fernandez and Billy Cook's corporate credit desk have left the bank, according to people familiar with the issue. City is still committed to the business and is hiring for the desk, one of the people said, adding that it is operating under interim coverage.
– Support from Dan Wilkins.
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