Banks and investors grow wary of AI debt after the selloff, shopping data center loans at steep discounts

Banks and investors are growing wary of debt tied to artificial intelligence after being spooked by the market selloff¹. Nasdaq-listed neocloud firm Nebius had been exploring a high-yield bond issue in September but decided not to go ahead with it last month^1,2. Nebius dropped the bond plan in October and signed a different financing arrangement instead⁶.

After rushing to lend money for the data center buildout, some investors now cannot dump that exposure fast enough, and whole portfolios of loans are being shopped at steep discounts³. Banks are offloading AI data center loans to reduce their risk, and a loan tied to OpenAI’s Stargate project is also up for sale⁴.

Wall Street lenders are exploring sales of existing data center loans, and Morgan Stanley is looking at moving data center loan risk to private credit⁵. “Debt investors’ books have become full,” one account of the pullback said⁶.

Why it matters to investors

The pullback reaches from CoreWeave’s bonds to a $40 billion chip lease linked to SpaceX, as lenders step back from AI borrowers⁶. The loan sales coincide with growing regulatory pressure on data centers⁴.

Large deals are still being done, but with support. US banks have launched a $60bn debt deal tied to Anthropic’s lease of Google semiconductors⁸. The new debt will be partially backstopped by Broadcom⁸. A guarantee from a supplier of that kind shifts part of the risk away from the lending banks⁸.

Pressure is also building on the demand side. Neocloud firms are grappling with delays and high costs, and some key Microsoft leaders have developed a case of buyer’s remorse⁷. The result has been described as a funding drought for neocloud companies⁷.

What to watch

The pricing of loan portfolios now being shopped will show how deep the discounts run³. The outcome of Morgan Stanley’s effort to move data center loan risk to private credit will show whether private lenders are willing to take on the exposure that banks want to shed⁵.

For borrowers, the key test is whether companies that shelved bond plans, as Nebius did, can find other financing on workable terms^1,6. Further sales of large project loans, such as the Stargate loan now on the market, would signal that banks are still reducing their exposure⁴.

Backstops of the kind Broadcom is providing for the Anthropic deal are another marker of how lenders are adjusting the terms on which they will fund AI projects⁸.