(Bloomberg) — When Applied Digital Corp. first tapped the junk-bond market in November to fund a data center project tied to CoreWeave Inc., it had to stomach a hefty yield to get the deal done. Fast forward to this week, and borrowing costs for another portion of the same project tumbled.
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An Applied Digital subsidiary just raised $1.59 billion in the junk bond market to fund additional computing capacity for CoreWeave in North Dakota. The bonds were priced to yield 7%, a steep drop from the 10% investors demanded just months ago.
The decline underscores how investor anxiety over reliance on speculative-grade CoreWeave as a key data center tenant has eased, lowering borrowing costs for other developers leasing projects to the cloud infrastructure supplier like Core Scientific Inc. and Prime Data Centers LLC.
This latest pricing sits just under 1 percentage point above the borrowing costs on Cipher Digital Inc.’s recent bond sale to fund a data center tied to Amazon.com Inc. For context, Applied Digital’s pricing gap against another Cipher deal for an Alphabet Inc.-linked project in November was almost 2.9 percentage points.
It’s a reflection of how CoreWeave’s credit risk has improved. The cost of protecting its debt against default for five years fell to as low as 4.52 percentage points earlier this month, from a high of 8.81 percentage points in December.
“We’ve shown we can turn diverse customer demand into deployed infrastructure and long-term revenue, while AI has evolved from an emerging technology into a core business investment,” CoreWeave Chief Development Officer and Co-Founder Brannin McBee said in an email.
Representatives for Applied Digital didn’t respond to requests for comments.
CoreWeave is also in the market for a bond deal of its own, setting initial pricing thoughts for a $3.5 billion-equivalent sale in dollars and in euros. The company met with European fixed income investors earlier this week.
Founded in 2017 as a crypto miner, CoreWeave amassed a trove of Nvidia Corp. graphics processing units in its early days. Today, it operates nearly 50 data centers across North America and Europe, leasing those highly coveted chips by the hour to companies like Microsoft Corp. and OpenAI.
Data center developers have raised more than $8 billion from high-yield bond sales for projects leased to CoreWeave, according to data compiled by Bloomberg.
