JPMorgan, Goldman Curb Exposure on $5 Billion Volta AI Loan Sale

(Bloomberg) -- JPMorgan Chase & Co. and Goldman Sachs Group Inc. have taken a rare move to limit their exposure on a $5 billion loan sale for AI startup Volta Infrastructure Holdings Ltd. as investors demand higher yields for risky debt tied to the artificial intelligence boom.

The two banks are leading the loan offering for Volta, a new artificial intelligence cloud company. The banks have underwritten a $1.3 billion term loan for Volta, while a $3.7 billion chip loan is not underwritten by the banks — a move to protect themselves from potential risks, according to people familiar with the deal.

Volta’s debt is being pitched with a yield of about 11%, one of the highest borrowing costs seen in the leveraged loan market that’s become popular for financing AI. Notably, the transaction is unrated, which would typically prevent collateralized loan obligations — the biggest buyers of this type of debt — from purchasing the loans.

Representatives for JPMorgan, Goldman and Volta declined to comment.

Lenders usually provide underwrites on an entire debt package to reassure borrowers that a deal will be financed whether investors buy it or not. While underwriting is a lucrative business for the lenders, and is usually tied to buyouts, it carries the risk of being left on the hook if the debt sells at a lower price than agreed on with the borrower or is not sold at all. Debt commitments for AI deals are more unsual.

Banks are wary of getting stung again like they were in 2022, when markets seized up amid rapid interest-rate hikes, leaving lenders with big losses from the hung debt stuck on their balance sheets.

At the same time, funding the AI boom — especially with deals for new or untested companies — has required lenders to adopt less conventional underwriting structures in the leveraged finance market, the people said, asking not to be identified because they’re not authorized to speak publicly. Banks are trying to navigate potential risks and make sure they aren’t caught out, they added.

Volta is among a group of AI companies known as neoclouds, which rent access to chips and other AI infrastructure. The company’s deal will be used to finance a data center complex in Norway that will be managed by Volta Infrastructure in partnership with Bitdeer Technologies Group, a Bitcoin miner that operates data centers. Anthropic PBC has already signed a six-year agreement for compute capacity at the site, Bloomberg previously reported, citing people familiar with the agreement.

The $1.3 billion term loan will be used to make lease payments to Bitdeer to use the data center, Bloomberg previously reported. The $3.7 billion chip loan will be used to purchase about 36,000 graphics processing units, or GPUs, made by Nvidia Corp.

Wall Street has thrown its weight behind the AI build out and deals by neoclouds including CoreWeave Inc., Lambda Inc. and Crusoe Inc. have proven that lenders are happy to finance chip purchases. Those earlier transactions, however, came at lower borrowing costs than Volta’s deal.

Volta was founded earlier this year by Ricard Boada and Sofia Gumuzio, two former executives from Brookfield Asset Management Ltd.’s infrastructure business. The company’s goal is to make it easier for top AI labs and smaller startups to pay for Nvidia’s cutting-edge chips.

Commitments for the deal are due on October 14. JPMorgan had begun sounding out investors on the loan in August, Bloomberg previously reported.

More stories like this are available on bloomberg.com

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