Morgan Stanley becomes Wall Street’s top bank for AI debt deals

{"text":[[{"start":9.7,"text":"Morgan Stanley has emerged as Wall Street’s chief architect of the financing structures underpinning the AI boom, devising new debt and equity models that are funnelling tens of billions of dollars into the massive build-out of data centres."}],[{"start":23.85,"text":"According to industry executives, the bank has become the dominant adviser putting together the biggest and most inventive AI infrastructure financings since last year."}],[{"start":34.25,"text":"This includes a $3.2bn bond for data centre developer TeraWulf backed by Google, a $27bn debt package for Meta’s Hyperion data centre tie-up with Blue Owl and, more recently, advising Broadcom on a $35bn chip financing deal."}],[{"start":50.75,"text":"The bank’s surge in AI dealmaking helped it edge past longtime rival Goldman Sachs in the first half of the year in debt and equity capital market fees, which grew to $2.3bn, up from $1.4bn a year earlier, according to data from LSEG. That put Morgan Stanley in second place globally for capital markets fees after JPMorgan Chase, up from fourth a year earlier. "}],[{"start":76.95,"text":"The deals illustrate how AI is reshaping not only technology but also capital markets. Rather than relying solely on traditional project finance or corporate borrowing, bankers are increasingly designing structures that package long-term computing contracts and Big Tech’s balance sheets into securities that can be sold to mainstream investors. "}],[{"start":96.6,"text":"The result has dramatically expanded the pool of capital available to fund AI infrastructure, while tying more of the financial system to continued demand for AI computing. "}],[{"start":106.55,"text":"“Dollar amounts that used to be $1bn, $2bn, $5bn are now $10bn or $20bn and higher,” said Mo Assomull, Morgan Stanley’s co-head of investment banking."}],[{"start":118.25,"text":"Silicon Valley’s tech giants have said they cannot meet customer orders and have continued to raise their spending. Morgan Stanley itself expects the AI build-out will consume $10tn of spending over coming years. "}],[{"start":131.95,"text":"Key to securing low rates and billions in capital has been tying in hyperscalers — Google, Amazon, Meta and Microsoft — which entered the AI boom with pristine balance sheets. When one of them guarantees the leases on a data centre, the cost of financing roughly halves. "}],[{"start":148.95,"text":"“Where do you want to raise money, at mid to high single digits or double that?” said Assomull."}],[{"start":154.45,"text":"Morgan Stanley’s leveraged finance co-head, William Graham, was behind the deal that has become the template for AI infrastructure financing."}],[{"start":163.35,"text":"His team designed a bond for data centre developer TeraWulf, a security that can be sold widely. But they added some protections of a project loan, creating a hybrid instrument “wrapped” — or backstopped — by Google. Most of the data centre’s capacity will be for Anthropic, people familiar with the matter said."}],[{"start":181.6,"text":"The structure brought a new pool of credit investors such as insurers, asset managers and pension funds into financing data centre builds, allowing TeraWulf to raise $3.2bn at a 7.75 per cent yield. "}],[{"start":null,"text":"

"}],[{"start":195.9,"text":"Patrick Fleury, chief financial officer of TeraWulf, said the novel construction bond let them skip the slow, stage-by-stage lender reviews that come with drawing down traditional project-finance loans from banks — their main alternative — while still borrowing cheaply enough to make the economics of its business work. "}],[{"start":213.15,"text":"“Effectively, we were able to borrow against the strength of Google’s balance sheet,” Fleury said. "}],[{"start":218.8,"text":"To further reassure investors, Morgan Stanley adopted project-finance features such as “lockboxes” that ringfence the lease payments and direct them straight to bondholders, and added other extra collateral."}],[{"start":231.05,"text":"Since the TeraWulf deal, Morgan Stanley has sold more than $40bn of the construction bond products and is taking the structure to new markets across Asia and Europe."}],[{"start":242.10000000000002,"text":"“We’ll get to a place where AI infrastructure bonds are the majority of the annual supply of new-money non-investment-grade debt,” Graham predicted. “It is the fastest-growing segment of the market and the first time to have a new segment in the market in the last 20 years.” "}],[{"start":256.5,"text":"Some rival bankers said they were reluctant to be seen as the number one player in the space given the unpopularity of data centres in communities across the US. JPMorgan’s chief financial officer Jeremy Barnum also cautioned this week that the bank has looked at the lending terms of some data centre financing deals “where we were just like, ‘yes, we’re not doing that’”."}],[{"start":278.65,"text":"Morgan Stanley has helped push the model beyond financing data centres themselves. In May, the bank and MUFG arranged a $3.1bn loan for neocloud CoreWeave to buy and install Nvidia graphics processing units, the chips needed to power advanced AI. It was the first GPU financing done as a broadly syndicated term loan, bringing in a wider pool of capital in — this time to finance the chips themselves."}],[{"start":304.29999999999995,"text":"The loan attracted almost $20bn of investor demand, Graham said, underscoring appetite for a financing model that hinges less on the value of the chips than on the contracts to use them. "}],[{"start":317.04999999999995,"text":"Under the structure, the GPUs and the data centre are financed separately: the building is backed by a lease, while the chips are financed against long-term take-or-pay agreements."}],[{"start":328.15,"text":"“You may have a car payment and you may have a garage bill,” Graham said. “The chip is the Ferrari . . . it needs a place to be parked. And so you need a data centre to place that chip.”"}],[{"start":338.95,"text":"While the chips are added collateral, Graham said credit investors focused more on who signed the contracts to rent the chips. "}],[{"start":346.2,"text":"Morgan Stanley in March helped CoreWeave price an $8.5bn chip loan backed by a hyperscaler contract at 2.25 per cent above the benchmark rate. The May chip loan was backed by weaker credits — two AI labs — and priced at 4.5 per cent above the benchmark. "}],[{"start":363.59999999999997,"text":"The wider spread also illustrates a key risk underpinning the AI financing boom. The further the lending moves away from hyperscalers’ balance sheets towards the AI labs consuming much of the computing power, the thinner the underlying credit becomes."}],[{"start":378.45,"text":"Raj Joshi, a senior vice-president at Moody’s Ratings, said the financial health of Anthropic and OpenAI was a risk he watched closely."}],[{"start":387.4,"text":"“This is a huge capex investment cycle, you don’t have parallels to it in history,” Joshi said. “There is no playbook for this.”"}],[{"start":404.4,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1784531855_1505.mp3"}