(Bloomberg) — After a $300 billion AI debt binge that spanned every corner of the credit market, investors are starting to show some signs of fatigue.
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Make no mistake: There’s still appetite for those deals. But bankers have had to work harder to sell them lately, offering more incentives and higher compensation to investors who are spoiled for choice. Just on Thursday, they had the option of buying into Meta Platforms Inc.’s jumbo investment-grade offering, or take more risk and look at the latest leveraged loan deal from CoreWeave Inc.
But there are signs of waning enthusiasm. Meta racked up a peak order book of about $96 billion for a bond sale that’s expected to raise as much as $25 billion, according to people with knowledge of the matter. The last time it tapped the corporate bond market in October, it drew $125 billion of demand for a $30 billion deal.
And lately, investors are demanding more protection and more favorable pricing. On Thursday, an issuer tied to SoftBank Group Corp. upped the yield on its offering after struggling to attract demand.
Borrowers are also agreeing to repay some or all of the principal on debt before it matures, a clause called amortization that removes risk down the line. More issuers — especially in the junk-bond market — are getting so-called backstops from Alphabet Inc.’s Google, a covenant guaranteeing that a data center lease will be paid even if a tenant defaults. There are also provisions that place a ceiling on building costs.
It all suggests an undercurrent of anxiety around a market that has held up well so far — but is still relatively new and untested. And with estimates that the AI buildout could cost some $3 trillion, the size of the borrowings is only likely to balloon from here.
“At the end of the day, these companies are selling a lot of debt and they’re going to have to pay up to borrow,” said Robert Tipp, head of global bonds at PGIM Fixed Income. “The market, after a spectacular narrowing in corporate spreads to historical tights, is seeing a wall of worry piled up before it.”
Many money managers say there aren’t always conventions for how provisions designed to give lenders more protection should translate to yields and risk premiums on the securities.
“We’re seeing what different investors value when it comes to these financings and how they’re evaluating risk and return,” John Servidea, global co-head of investment grade debt capital markets at JPMorgan Chase & Co. said about data-center debt. “We’re seeing really good demand for these deals but as supply increases, we expect deal terms and structures to continue to evolve.”
