CoreWeave wants to sit with the credit-market grown-ups

{"text":[[{"start":3.4,"text":"Some credit investors want to be daredevils, taking on big risks in the hope of big returns. Others are fraidy-cats who prefer safety and will thus accept a more modest reward. CoreWeave, the US cloud computing company, has lately managed to give both groups what they want."}],[{"start":20.36,"text":"On Tuesday, CoreWeave posted quarterly revenue that almost tripled year-on-year, sending its shares up by more than a quarter in Wednesday’s trading. That’s quite a reversal for a company that has become a kind of Wall Street bellwether for the state of AI. Its $10bn or so in unsecured bonds have been sliding in price in recent months, their yields edging towards 20 per cent — compared with coupons of about 10 per cent."}],[{"start":null,"text":"

"}],[{"start":45.28,"text":"With unsecured borrowing so expensive, CoreWeave is now leaning into another form more tailored to risk-averse investors: the so-called delayed-draw term loan. This is a kind of project finance repaid using funds from specific, multiyear contracts with big customers, say an AI lab or a big company. Whatever is left after servicing those debts flows to CoreWeave’s unsecured lenders, and then eventually to its equity."}],[{"start":71.36,"text":"CoreWeave has been able to secure investment-grade ratings on DDTL debts; the cost of funds is about 10 per cent or less. Moreover, a company executive recently told the FT that DDTLs will become a foundational asset for life insurers and providers of annuities. CoreWeave now plans to rely almost exclusively on project finance and eschew pricey, unsecured junk bonds, given the disconnect in cost."}],[{"start":97.64,"text":"Where does that leave investors in the riskier parts of CoreWeave’s capital structure? The main worry has been spending on chips and data centre capacity would outstrip demand. Tuesday’s earnings helped restore some confidence: the company has a revenue backlog of $133bn, which it should generate sufficient profit to pay off its existing $60bn or so of debt, including leases."}],[{"start":118.96,"text":"Without question, CoreWeave has benefited from a hitherto forgiving junk bond market. But in the nearly 20 months since it went public, it has managed to reach a solid level of profitability. Its margin before interest and chip depreciation is now 62 per cent, and it has built a name in asset-based borrowing that means investors no longer see it as quite so edgy."}],[{"start":141.52,"text":"One mystery remains: while CoreWeave’s unsecured bonds still trade at big discounts to face value, its equity, the riskiest part of its structure, is valued by the market at more than $30bn. That suggests debt investors might be too bearish. Analysts at CreditSights argue the unsecured bonds, at a 15 or 20 per cent yield, have been oversold. Maybe it’s not just the daredevils who should be taking a closer look."}],[{"start":169.28,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1794443867_9393.mp3"}