CoreWeave is back in the US junk bond market for the second time this year, riding on the coattails of the AI company’s plans to buy data center infrastructure provider Core Scientific in an all-stock transaction valued at US$9bn.
The Nvidia-backed borrower is approaching investors with a US$1.5bn B1/B/BB- rated 5.5-year non-call 2.5 bond, which lead-left JP Morgan is talking in the low 9% area and which is expected to price on Tuesday.
“The offering is definitely not a surprise,” Stu Novick, a senior US high-yield analyst at research firm Gimme Credit, said on Monday via email. “The company has some massive capex plans and needs to raise a lot of money over the coming year or so.”
The unsecured deal comes amid a broader push to build the necessary infrastructure and energy resources to advance artificial intelligence capabilities in the US and raise the trillions of dollars required to back those efforts.
Earlier in July,
Blackstone announced plans to invest more than US$25bn to develop Pennsylvania’s energy and digital infrastructure, including a US$6bn pledge from CoreWeave to equip a new state-of-the art data center just outside Philadelphia.
The Core Scientific acquisition and CoreWeave's pledge to support the AI buildout in Pennsylvania have comforted some on the buyside who had been wary of a company that is still building out its infrastructure to compete against some of world’s biggest tech names, some of which are also customers.
“We were not huge fans [of CoreWeave] prior to their announced expansion program in Pennsylvania and their announced acquisition of Core Scientific but we are more positive on it post those two announcements as it gets them closer to key hard assets,” said a high-yield portfolio manager.
With the recent acquisition, CoreWeave not only gains control over critical power facilities, but it is also relieved of more than US$10bn in lease obligations that it had to pay Core Scientific over the next 12 years. The company says that the merger will also unlock cheaper sources of financing.
“By owning the underlying infrastructure, we can attract new and diverse sources of capital, including infrastructure-oriented vehicles that can replace traditional debt or equity financing,” said CFO Nitin Agrawal on a call with analysts on July 7.
“We expect to drive down our cost of capital significantly, unlocking financing structures only made possible through direct asset ownership.”
CoreWeave was last in the junk bond market in May, when it
debuted with a 2030 bond that was priced at par to yield 9.25% after being upsized to US$2bn from US$1.5bn. The bond has since rallied to trade on July 18 as high as 101.827 for a yield of 8.676%.
“The price talk seems in line: 5.5 years puts the issue’s maturity just after the existing bonds mature [on June 6, 2030] and the coupon is in line to slightly lower than the existing issue’s 9.25%,” Novick said.
The transaction comes on the heels of a rally in CoreWeave’s stock price after a less than stellar
IPO in March, which resulted in banks downsizing the deal by about 40% and pricing 37.5m shares at US$40 each, well below the US$47–$55 range.
The stock was trading at around US$129.11 early Monday afternoon, though that is down from a closing price of 183.32 on June 20. Core Scientific shares were trading at around US$13.52 earlier on Monday, down from the July 3 closing price of US$18.
The Core Scientific acquisition is expected to close in the fourth quarter but still requires regulatory approval and a nod from the company’s shareholders.
Weaker stock prices may reflect talk of some possible pushback from Core Scientific stockholders, who under the agreement will receive 0.1235 newly issued shares of CoreWeave Class A common stock for each share of Core Scientific common stock held.
“There’s clearly been some pushback as illustrated by the reaction of both stocks, although [there is] no talk of a revised offer,” Novick said.
He said that the elimination of the CoreWeave’s lease obligations to Core Scientific should be credit positive. Moody’s said in a report on Monday that the US$500m annual cost savings from the release of those leases will help the company's long-term profitability and free cash flow.
"I still see the situation here as speculative (net leverage is greater than 6x right now) but it should improve rapidly as free cash flow deficits decline," said Novick, who forecasts net leverage falling to mid to high 5x by year-end and to mid to high 3x by the end of 2026.