NVIDIA’s 16-year long-term lease agreement boosts data center bond issuance, shifting the AI infrastructure borrowing boom to the ‘junk bond’ market.
$NVIDIA (NVDA.US)$A data center built with 3.8 billion USD in junk bond issuance is expected to be leased, further fueling the borrowing frenzy surrounding artificial intelligence infrastructure.
According to insiders, an entity backed by asset management firm Tract Capital will raise funds through a bond issuance to support part of the construction of a 200-megawatt data center and substation in Storey County, Nevada.
The size of the bond deal increased by $150 million on Thursday afternoon, reflecting strong market demand. Insiders added that current pricing discussions anticipate a yield of around 6%.
In recent months, data center developers have been leveraging the high-yield bond market (also known as the junk bond market) to raise funds for constructing new facilities. Previously, two cryptocurrency miners—Cipher Mining Inc. and TeraWulf Inc.—conducted such financing with Google’s backing; Applied Digital Corp. also raised funds for related facilities, which will rely on CoreWeave Inc., a tenant with junk-rated bonds, as a primary lessee.
According to bond issuance documents, NVIDIA’s initial lease agreement spans approximately 16 years, with the blue-chip company holding two ten-year renewal options.
From Oracle to Meta, many borrowers have raised billions in the investment-grade bond market to build facilities supporting the AI boom, but transactions initiated by junk-rated companies remain relatively scarce.
Tract Capital, an alternative asset management firm focused on digital infrastructure with approximately $6 billion in assets under management, recently launched a strategy called “Fleet,” aimed at constructing new data centers for hyperscale enterprises. Fleet I, its inaugural fund, is also the holder of SV RNO Property Owner 1, the borrower in this bond issuance.
Documents show that Fleet I was originally expected to contribute approximately $620 million in equity to support the project’s construction. The proceeds from the additional bond issuance will be used to reduce the equity contribution.
The transaction is expected to be priced on Friday. Documents show that JPMorgan is serving as the lead underwriter for the deal, with Morgan Stanley acting as co-lead underwriter.
While NVIDIA operates its own data centers, it also secures additional capacity by leasing space from cloud service providers such as Amazon’s AWS and Microsoft’s Azure. NVIDIA leverages AI to design chips and computers, stating that this process is becoming increasingly complex and requires more powerful computing capabilities. Additionally, NVIDIA develops AI models and software products, many of which are open-source.
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