AI computing power provider CoreWeave, Inc. is seeking another large-scale fundraising through an investment-grade loan.
On November 11, according to people familiar with the matter cited by Bloomberg, Morgan Stanley and Mitsubishi UFJ Financial Group (MUFG) are leading the potential financing of at least $4 billion, with plans to syndicate it to investors in stages, possibly starting as early as next week, though the plan has not yet been finalized.
CoreWeave, Inc. released its earnings on Tuesday, raising its full-year revenue guidance to $13 billion to $13.3 billion, above its previous expected range and also exceeding the Wall Street average estimate of $12.9 billion. The company's shares rose sharply on Wednesday, and its bond prices climbed as well.
After the news was announced, CoreWeave, Inc. fell nearly 6% after hours.
This financing will provide another market test of its operating model of using chips and related contracts as collateral and leveraging an investment-grade rating to lower financing costs. In March this year, CoreWeave, Inc. completed an $8.5 billion investment-grade financing through a similar structure, and pricing on the new financing is expected to tighten further.
Using chip contracts as collateral to lock in investment-grade rates
Although CoreWeave, Inc. remains junk-rated in terms of credit ratings, the company has succeeded in obtaining investment-grade ratings on some financing arrangements by using Nvidia chips and customer contracts as underlying collateral assets, thereby significantly reducing financing costs.
According to reports, this structure is expected to be carried over to the new financing. Based on information disclosed on CoreWeave, Inc.'s earnings call on Tuesday, the initial discussion range for the new financing's issue yield is about 7% to 7.5%, roughly half the current trading yield on its existing junk bonds.
The $8.5 billion investment-grade financing completed in March this year was backed by a Meta customer contract and split into two parts: a floating-rate tranche with a spread of 225 basis points over the Secured Overnight Financing Rate (SOFR), and a fixed-rate tranche with a financing rate of about 5.9%.
Highly leveraged expansion model under scrutiny, doubts linger over returns on AI infrastructure investment
CoreWeave, Inc. provides computing power services to major technology platforms such as Meta, and its business sits at the center of the market debate over whether AI infrastructure investment can generate sufficient returns.
The company has long relied on the high-yield bond market to fund large-scale infrastructure construction, and its highly leveraged model continues to draw investor attention.
The sharply raised revenue guidance, along with executives' clear willingness to refinance expressed on the earnings call, has to some extent eased concerns about its debt repayment capacity, driving gains in both its shares and bonds.
According to reports, CoreWeave, Inc. and Morgan Stanley declined to comment on the financing plan, while MUFG did not respond to a request for comment. Whether the financing plan can be smoothly completed will still depend on the market's actual willingness to absorb the company's debt.