The Zhitong Finance App notes that J.P. Morgan Chase (JPM.US) and Goldman Sachs (GS.US) have taken a rare step to limit their risk exposure to a $5 billion loan sale to AI startup Volta Infrastructure Holdings Ltd., because investors are demanding higher yields on risky debts associated with the AI boom.
The two banks are leading loan issuances for Volta, a newly formed artificial intelligence cloud company. According to people familiar with the matter, the two banks underwrote a $1.3 billion term loan for Volta, while a $3.7 billion chip loan was not underwritten by the two banks — a move aimed at protecting themselves from potential risks.
Volta's debt is being promoted to investors at a yield of around 11%, which is one of the highest borrowing costs in the leveraged loan market, which has become a popular channel for AI financing. Notably, the deal has no ratings, which generally discourages loan collateral bonds (CLO) — the biggest buyers of this type of debt — from buying these loans.
The lender usually underwrites the entire debt package to guarantee the borrower that the transaction will be funded regardless of whether the investor subscribes or not. Underwriting is a lucrative business for lenders, usually linked to acquisition transactions, but if the debt is sold below the price agreed with the borrower, or if it fails to sell at all, the lender bears the risk of being locked up. Debt promises for AI transactions are even rarer.
Banks are wary of being hit again like in 2022. The rapid rise in interest rates in that year caused the market to freeze, leaving large amounts of slow-selling debt stuck on lenders' balance sheets, causing them to suffer huge losses.
Dealing with risk
Meanwhile, funding the AI boom — particularly arranging deals for newly formed or untested companies — has required lenders to adopt a less conventional underwriting structure in the leveraged finance market, according to people familiar with the matter. They added that banks are trying to manage potential risks and ensure they aren't caught off guard.
Volta belongs to a class of AI companies known as “neocloud” (neocloud), which rent out the right to use chips and other AI infrastructure. The company's deal will be used to finance a data center complex in Norway, which will be managed by Volta Infrastructure in partnership with BTDR.US (BTDR.US), a Bitcoin mining company that operates the data center. According to people familiar with the matter, Anthropic PBC has signed a six-year agreement on the site's computing power capacity.
This $1.3 billion term loan will be used to pay Bitdeer for leasing the use of the data center. The $3.7 billion chip loan will be used to purchase approximately 36,000 graphics processing units (GPUs) manufactured by Nvidia (NVDA.US).
Wall Street has fully supported AI construction, and new cloud companies such as CoreWeave Inc. (CRWV.US), Lambda Inc., and Crusoe Inc. have proven that lenders are happy to finance chip purchases. However, these earlier deals all cost less to borrow than Volta's one.
Volta was founded earlier this year by Ricard Boada and Sophia Gumuccio, both of whom previously worked in the infrastructure business division of Brookfield Asset Management (BAM.US). The company's goal is to make Nvidia's cutting-edge chips more affordable for top AI labs and smaller startups.
The subscription commitment deadline for this deal is October 14. J.P. Morgan began testing investor intentions for this loan in August.