Goldman Sachs and JPMorgan Hit the Brakes on AI Infrastructure Financing: Out of a $5 Billion AI Loan, They Dare to Take On Only $1.3 Billion, and Even at 11% High Interest, They Won't Fully Underwrite It

Notice that JPMorgan (JPM.US) and Goldman Sachs Group, Inc. (GS.US) took a rare step to limit their exposure to the sale of a $5 billion loan for AI startup Volta Infrastructure Holdings Ltd., because investors are demanding higher yields on risky debt tied to the artificial intelligence boom. The two banks are leading the loan issuance for Volta, a newly established AI 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 banksa move aimed at protecting themselves from potential risks. Volta's debt is being marketed to investors at a yield of about 11%, one of the highest borrowing costs in the leveraged loan market, which has become a popular channel for AI financing. Notably, the deal is unrated, which would normally prevent collateralized loan obligations (CLOs)the largest buyers of such debtfrom purchasing these loans. Lenders typically underwrite the entire debt package to assure borrowers that the transaction will be financed whether or not investors subscribe. Underwriting is a lucrative business for lenders and is usually tied to acquisition deals, but if the debt is sold below the price agreed with the borrower, or fails to sell at all, lenders bear the risk of being stuck with it. Debt commitments for AI deals are even rarer. Banks are wary of being burned again as they were in 2022, when rapid interest rate increases froze the market, leaving a large amount of unsold debt stranded on lenders' balance sheets and causing them huge losses. Managing Risk At the same time, people familiar with the matter said, financing the AI boomespecially arranging deals for newly created or untested companieshas required lenders to adopt less conventional underwriting structures in the leveraged finance market. Banks are trying to navigate the potential risks and ensure they are not caught off guard, they added. Volta belongs to a category of AI companies known as "neoclouds," which rent out access to 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 Bitdeer (BTDR.US), a bitcoin miner that operates data centers. Anthropic PBC has signed a six-year agreement for the site's computing capacity, according to people familiar with the matter. The $1.3 billion term loan will be used to pay Bitdeer for the use of the data center. The $3.7 billion chip loan will be used to purchase about 36,000 graphics processing units (GPUs) manufactured by NVIDIA Corporation (NVDA.US). Wall Street has thrown its full support behind AI buildout, with deals for neocloud companies such as CoreWeave Inc. (CRWV.US), Lambda Inc., and Crusoe Inc. proving that lenders are happy to finance chip purchases. However, those earlier transactions had lower borrowing costs than Volta's deal. Volta was founded earlier this year by Ricard Boada and Suofeiya Home CollectionGumuxio, both of whom previously worked in the infrastructure business of Brookfield Asset Management (BAM.US). The company aims to make cutting-edge NVIDIA Corporation chips more affordable for top AI labs and smaller startups. The subscription commitment deadline for the deal is October 14. JPMorgan began sounding out investors about the loan in August.