AI Debt Indigestion Forces Wall Street to Rethink Bond Sales

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessAI Debt Indigestion Forces Wall Street to Rethink Bond SalesWhen BlackRock Inc. sought to raise billions in debt financing for a Meta Platforms Inc. data center, there was one type of investor the asset management giant wanted to avoid: those looking for a quick profit.Author of the article:Davide Barbuscia, Reshmi Basu, Tasos Vossos and Ronan Martin You can save this article by registering for free here. Or sign-in if you have an account.A Meta data center in Ashburn, Virginia. Photo by Lexi Critchett /Photographer: Lexi Critchett/Blo(Bloomberg) — When BlackRock Inc. sought to raise billions in debt financing for a Meta Platforms Inc. data center, there was one type of investor the asset management giant wanted to avoid: those looking for a quick profit.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountTo insulate the deal from the chill engulfing AI-linked debt, the transaction’s underwriters deliberately favored so-called real-money accounts like pension and insurance funds, according to people familiar with the matter. Those institutions typically buy-to-hold — unlike fast-trading investors whose rapid-fire strategies can swiftly tank a bond’s secondary market performance. It was a defensive maneuver born from a reversal in investor appetite. As tech borrowing surges, buyers have grown wary that massive AI spending won’t pay off. Nvidia Corp., SpaceX and Amazon.com Inc., each raised $25 billion only to see their debt crater below issue price the moment trading began. If bonds keep weakening soon after being sold, money managers grow hesitant to buy them.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“The biggest headwind facing banks and issuers is the lack of secondary market performance,” said John Servidea, global co-head of investment grade finance at JPMorgan Chase & Co. “We continue to believe the market can absorb this issuance but its scale and speed have created indigestion.”To combat cooling demand, underwriters are spacing out debt sales and signaling a slower issuance pace. Alphabet Inc. said on Thursday that its latest bond sale would be its last in the US market this year, and offered other concessions to boost demand. Others are seeking to anchor investor interest before a formal launch by scheduling non-deal roadshows to determine what price would convince buyers.The strategy appeared to work for BlackRock’s $12.5 billion bond sale, led by JPMorgan and Morgan Stanley. Although the transaction’s oversubscription level fell below average, the selective allocation helped the bonds outperform after pricing, with their spread over Treasuries dropping as soon as they started trading.Still, clearing the deal had required BlackRock to dangle a hefty 7.5% yield.Representatives for BlackRock, JPMorgan, Meta and Morgan Stanley declined to comment.Contrast that with SpaceX’s debt. When the company sold $25 billion of bonds in June, the notes weakened quickly, with traders suggesting it was fast-money accounts looking to flip it.When Amazon sold $25 billion in early July, the 10-year debt premium over Treasuries, which widens when demand dwindles, rose by as much as seven basis points in the first few days of trading. Spreads for the 10-year tranche of Nvidia’s $25 billion bonds saw a five basis-point widening in their first trading week. Typically, about two-thirds of weekly US investment-grade bond sales trade at tighter spreads in the secondary market within a few days of issue, according to data compiled by Bloomberg. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.So far this year, Amazon, Alphabet, Nvidia, Meta, Oracle Corp. and SpaceX have together raised more than $200 billion from dollar bond sales, dwarfing the $13 billion from high-grade tech companies in the same period last year.The deluge is poised to continue. Banks led by Morgan Stanley are in talks to line up $15 billion of debt for an Anthropic PBC data-center project in Texas, backstopped by Alphabet’s Google. One banker privately predicted that some $50 billion to $60 billion in debt from hyperscalers — the massive tech firms building data centers — will hit the market following the US Labor Day holiday in early September. That figure could be even higher, but some clients requested an issuance pause so that they could accommodate the new supply, the banker said, asking not to be identified discussing private information.Some companies have tried to pre-empt saturation concerns. When Meta sold $25 billion of high-grade bonds in April, it indicated that it wouldn’t issue more until at least the fourth quarter of this year. That message helped support demand, according to people familiar with the matter. And when Oracle raised $25 billion in February, it told investors it didn’t expect to return to the bond market in 2026. Banks, meanwhile, are growing even more tight-lipped about upcoming transactions, omitting jumbo tech deals from their weekly bond sale forecasts.“A bank preparing a $20 billion deal would be reluctant to forecast weekly issuance wider than the rest of the market as that could reveal its involvement and unsettle investors,” said Mariya Entina, a portfolio manager at DoubleLine. In fact, high-grade sales have far exceeded syndicate-desk projections compiled by Bloomberg in the weeks tech giants tapped the market this year.Riskier credit markets face similar challenges. The high-yield bond market has also become crowded, prompting data center CoreWeave Inc. to lean more heavily on leveraged-loans. And Goldman Sachs Group Inc. is in discussions with investors over pricing for a potential $5.4 billion debt offering to help fund a Blackstone-backed QTS data center tied to Microsoft Corp. The AI funding pressure is also upending conventions in bond markets, which typically slow in the US and Europe in summer.Late last month, for example, Equinix xScale brought a senior-secured debt deal backed by two data centers in the UK’s Slough. It opted to set the spread on the deal immediately, skipping the customary haggling of initial price talks and price guidance.The flood has made investors selective.“Given every hyperscaler’s capex ambition, I am not in a hurry to add,” said Kshitij Sinha, a fixed income fund manager at Canada Life Asset Management. —With assistance from Aaron Weinman, Michael Gambale and Gerson Freitas Jr..Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.