What happened
A lender group led by Morgan Stanley pulled together roughly $15 billion to fund construction of a data center in Hubbard, a town near Waco, Texas. The site is being built by Nexus Data Centers, leased to Anthropic, and has support from Alphabet Inc.'s Google.
Banks had aimed to refinance part of that package via a high yield bond sale of between $5 billion and $7 billion in September. After Texas put a hold on new projects to evaluate power grid risks, the timing shifted, and portions of the sale could be spaced out over the next year. That leaves the debt parked at the banks for longer than first planned. The bridge loan has already been funded, meaning the cash has been disbursed.
Meanwhile, Anthropic is pouring money into computing capacity as it heads toward a large initial public offering, adding urgency to the build.
How the deal is structured
At the core was a $14.2 billion, one-year term facility put together by Citigroup Inc., Intesa Sanpaolo, Mizuho Financial Group Inc., Morgan Stanley, Mitsubishi UFJ Financial Group Inc., Royal Bank of Canada, and Banco Santander SA. Each bank committed around $2 billion to that facility for one year, with the option to extend twice for up to an additional year.
It also included a revolving credit line of $1.4 billion with a five year tenor, with about $200 million provided by each bank. Some lenders in the group, including Santander, are working to bring in additional participants.
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Ratings in the mid BB area had already been assigned by some major agencies, according to people familiar. Spokespeople for Anthropic, Google, Citi, Santander and MUFG said they had no comment. Nexus Data Centers and the remaining banks did not provide an immediate response.
Politics, power, and a crowded pipeline
Data centers have emerged as a contentious issue heading into the Nov. 3 US midterms, with critics pointing to rising electricity bills and pressure on power and water resources. Abbott said the pause on new projects will last until the state's review is done.
This financing is one of many jumbo packages fueling the AI buildout. Banks have been moving similar exposures into bonds to free capacity as AI infrastructure demand soars. But investors are balking at higher borrowing costs and the prospect of more supply: the average risk premium on US high yield debt hit a 17 month peak this month, and primary markets have seen a run of withdrawn offerings.
The bottom line for investors
With the Texas freeze in place, banks are holding this bridge loan longer, and the refinancing window that was targeted for September could be chopped into tranches over the next year. For your portfolio, the takeaway is simple: AI related data center financings remain a big source of supply, and that backdrop is one reason yields and spreads in high yield are pressing higher.
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