Data center bonds scraped fresh lows this week as data center developer Cipher Digital’s new debt raise fueled investor anxiety over AI overspending.
CoreWeave CRWV bonds bore the brunt of the selloff, with yields on the neocloud’s raft of unsecured notes flaring to 15% and beyond amid escalating investor concern over the company’s ability to service its massive debt load. CoreWeave’s busiest 9.75% senior 2031 bonds dropped to low trades at 78 on Oct. 14 for a 16.39% yield (they started October at roughly 85), and its $1.25 billion print of 9.625% 2032 bonds slumped to 75, for a 16.5% yield (they were at 103.625 on June 2). They reclaimed levels of 83 and 80, respectively, on Oct. 15.
Meanwhile, Applied Digital APLD debt suffered added pressure from JPMorgan analysts, who cut the borrower’s project finance bonds to Neutral from Overweight, citing a looming “supply overhang” as the company prepares to borrow billions more to fund a massive construction pipeline. Wall Street analysts estimate that Applied Digital may need to raise another $8 billion in secured project debt to fund construction costs tied to its massive expansion and newly signed leases with major hyperscalers, including Meta Platforms.
Earlier this week, Applied Digital’s $1.59 billion June print of 7% five-year senior secured notes (inked via APLD ComputeCo 3 LLC) were down 1.125 points on the lows, at 94.5, to yield about 8.44%, from early August highs in the 99 area.
JPMorgan’s overhang concerns stem from Cipher Digital’s newly unveiled plan for a private offering of $850 million in zero-coupon convertible senior notes due 2032, with an option for initial buyers to purchase up to an additional $150 million. The borrower simultaneously announced plans to exchange a portion of its existing 1.75% convertible notes due 2030 for shares of common stock. Cipher plans to use the funds to finance equity investment in its Barber Lake project, build out high-performance computing (HPC) and AI data center infrastructure, expand its development site pipeline, and cover general corporate expenses.
Equity investors reacted negatively to the prospect of dilution and the restructuring of the company’s capital structure, driving the stock to a six-month low despite the company pledging to use a portion of the proceeds for capped call transactions to mitigate dilution. Morgan Stanley trimmed its outlook on Cipher stock after the announcement, lowering its price target to $51.50 from $54.00 while maintaining an Overweight rating as it recalibrates its assessment of the former bitcoin miner. The reaction among bondholders was more muted, with the borrower’s 7.125% senior secured notes due 2030 slipping 0.75 points on the news, to a 99.875 context and a roughly 7.17% yield.
Bitcoin miner CleanSpark’s recent $2.276 billion offering of 7.875% five-year senior secured green notes also gave up some ground, slipping 0.75 points to a 98.75 context and an 8.18% yield. That level represents the low end of a one-point range that has confined the bonds since they priced last month. Investors have been digesting CleanSpark’s recent decision to end monthly operational updates as it accelerates its transition toward AI data center buildouts and shifts to quarterly reporting.
Sources said good news from client Meta Platforms META helped limit CleanSpark’s bond losses in an AI-capex-wary market. Wall Street turned heavily bullish on Meta stock after the launch of its new frontier AI models, and investors viewed early third-party data tracking user retention for the Muse assistant as evidence that Meta can monetize its heavy AI infrastructure investments.
Editor’s Note: This article was originally published on PitchBook.