CoreWeave bond yield tops 16% after Democratic election wins
Default-insurance costs rose for CoreWeave and even Nvidia as investors weigh data center moratoriums under incoming Democratic governors.
Summary
In brief
- CoreWeave's 9.625% bond due 2032 yielded more than 16% in early November
- CoreWeave's five-year CDS passed 1,289 basis points on November 5, Deutsche Bank said
- Goldman Sachs says moratoriums could affect 45% of planned US data center capacity
The yield on CoreWeave's 2032 bond climbed above 16%, CNBC reported on November 6, as investors priced in new hurdles for data centers after Democrats won governor races in Texas, Ohio and Georgia.
CoreWeave, a neocloud that rents out GPU computing capacity, has become the main gauge of debt stress among data center builders. The 3 states hold much of the planned US capacity, and Goldman Sachs estimated that moratoriums could affect 45% of it, a large share in Texas.
The bond carries a 9.625% coupon, the fixed annual interest rate it pays. CoreWeave's five-year credit default swaps, contracts that pay out if a borrower defaults, rose above 1,289 basis points on November 5, wider than their October peak, according to Deutsche Bank. They eased 8% on November 6 to around 1,155.
Protection costs also rose for issuers with the strongest balance sheets. Swaps on Nvidia debt rose 76% in a month, Broadcom's 49% and Amazon's 44%, though from low levels, with Nvidia's spread at about 139 basis points against about 298 for Oracle.
Christopher Wood, global head of equity strategy at Jefferies, compared the situation to a lender raising the rate on a credit card in a note on November 6.
The most plausible way the AI capex arms race will end is that the credit card will be taken away.
— Christopher Wood, global head of equity strategy, Jefferies
Texas Governor-elect Gina Hinojosa has said she is not opposed to data centers but wants a moratorium until the state legislature passes protections for communities. Kevin Hassett, director of the National Economic Council, told CNBC on November 6 that he expects data center growth to continue as forecast.
Borrowing has continued. Goldman counted 5 AI bond deals totaling $67 billion since October 29, bringing hyperscaler debt issuance this year to $296 billion, and forecast $440 billion in 2027 plus $300 billion of project-level debt. Bank of America expects AI-related credit issuance to rise 31% to $685 billion in 2027, then fall 23% to $531 billion in 2028.
CoreWeave's bonds fell to new lows on November 4 after the election results, Bloomberg reported, and the company wrote to Hinojosa on November 7 seeking to work with her incoming administration on data center projects. In October, neocloud shares fell after Elon Musk predicted 'guppy-level death' for more than 200 such companies.
CoreWeave and Nebius, which have each lost about half their value over the past month, report quarterly earnings this week, CNBC reported on November 9.