CoreWeave (CRWV.US) plans to raise at least US$4 billion after raising its revenue guidance: AI compute provider begins a "junk-to-investment-grade" credit leap

AI compute provider CoreWeave (CRWV.US) plans to raise at least US$4 billion through an investment-grade loan after raising its annual sales forecast, easing investor concerns about its heavily indebted business model. According to people familiar with the matter, Morgan Stanley and Mitsubishi UFJ Financial Group, Inc. Sponsored ADR (MUFG) are leading the potential financing, with the loan to be distributed to a syndicate of investors in stages. The deal could enter the market as early as next week, but the plan has not been finalized and may still change. The people requested anonymity because they were not authorized to speak publicly. CoreWeave and Morgan Stanley spokespeople declined to comment, while MUFG did not respond to a request for comment. Why a "junk-rated" company can borrow at "investment-grade" prices The company, still rated junk, has previously relied heavily on high-yield bond market financing for its data center expansion. But it has been able to lock in lower borrowing costs by using chips and related contracts as collateral support for its debta structure expected to carry over to the new financing. The logic behind it is not complicated: CoreWeave provides compute to companies such as Meta Platforms, and long-term contracts with these major customers provide creditors with certainty of cash flow support. In March this year, the company obtained an US$8.5 billion investment-grade financing backed by its Meta customer contract. The loan was split into two parts: the floating-rate portion carried a spread of 2.25 percentage points above the Secured Overnight Financing Rate (SOFR), while the fixed-rate portion had a financing cost of about 5.9%. Guidance beats expectations, shares and bonds both rise On Tuesday, CoreWeave forecast full-year revenue of US$13 billion to US$13.3 billion, exceeding both its previous guidance range and well above the Wall Street average estimate of US$12.9 billion. Company executives also said they expect to secure another investment-grade-rated loan soona feature expected to allow it to borrow at lower interest rates. With anxiety growing over whether the massive investments in AI infrastructure will pay offand CoreWeave is at the center of that anxietythe deal will be a direct test of investors' appetite for its debt. After the earnings release, the company's shares surged on Wednesday, and its bonds also rose. Based on preliminary discussions, the new financing could be issued at a yield of between 7% and 7.5%a figure the company disclosed during its earnings call with analysts on Tuesday. That level is only about half the yield on its existing junk bonds.