Eleven Percent for the Plumbing

Re: Volta Infrastructure Holdings, $5.0bn senior secured term loan, commitments due October 14

To the syndicate desk,

Thanks for Monday's call. We read the terms twice, ran the numbers a third time, and the answer is no. I'm putting it in writing because your offering has accidentally published the most honest price in the market this week, and somebody should say so in a document.

Start with what you're asking us to buy. The borrower is seven months old and was valued at $2.4 billion after a $300 million venture round. It wants $5 billion. The loan is unrated and fully amortizing, marketed at 6.25 to 6.5 points over the benchmark with an issue price of 97 to 98, which Bloomberg's arithmetic turns into roughly 11% all-in. That is the highest yield attached to an AI loan so far. About $1.3 billion of the package exists only to cash-collateralize a letter of credit on a Norwegian data center lease. The structure is odd enough to keep CLOs out, normally the deepest bid in leveraged loans, so you are paying up to find unusual buyers. We are happy to be unusual at the right price.

I have no quarrel with the tenant. Anthropic has a six-year compute agreement on the site, and that contract is the good part. My quarrel is with everything between the tenant and me: a new sponsor, chips that age on Nvidia's roadmap, a data center leased from a bitcoin miner, and a floating coupon. In August the paper was reportedly shopped at 75% loan-to-cost. Floating matters. The 2-year closed Tuesday at 4.79%, about eighty basis points above the top of a funds range the Fed raised three weeks ago. Whatever the minutes say this afternoon, the front end has told you which way the benchmark leans, and unless the tenant's invoice floats too, every hike lands on your borrower's interest line and nowhere else.

Now look at the screen next to your deal. The S&P 500 closed Tuesday at 7,818.93, its first finish above 7,800. The Nasdaq Composite printed a record 27,599.79. Nvidia is within sight of $6 trillion. Marvell jumped about 7% for raising its long-term targets, and Constellation Energy was up roughly 15% at midday on a 20-year nuclear supply deal with Google. The same afternoon, the 10-year ended at 5.275% and the 30-year at 5.647%, a few basis points off Monday's touch of levels last seen in 2002.

The index is paying around twenty times forward earnings, an earnings yield near 5%, to own the equity side of this buildout. You want 11% from me to lend into it. The share buyer takes five percent, with growth, with the good news already in the price. The senior lender, who sits ahead of everyone, is being quoted more than double that. One of those two numbers is wrong, and I would love to tell you it's mine.

The equity bulls have a fair answer and it deserves a hearing. Estimates based on FactSet data, as one strategist cited them, put third-quarter earnings growth near 30% after roughly 50% in the second. Much of that sits with companies that own the cash or the contract: Nvidia with a $150 billion buyback authorization, Alphabet with its balance sheet, Constellation with a two-decade offtake. Equity holders are paying for the survivors. Your loan buys none of that. It buys the layer in between, a thin intermediary that borrows against a lease to acquire chips for someone else's workload. The index prices the survivors. The loan prices the plumbing. The distance between five and eleven is the market's running estimate of how many plumbers fail.

Bloomberg counts roughly $625 billion borrowed for data centers and AI investment over two years, against a buildout it sizes near $5 trillion by 2030. That arithmetic works only if money behaves, and this week it declined to. The inflation impulse still runs through a strait where nearly twenty ships have been attacked in a month. Washington's answers so far are a 100-million-barrel G7 stock release stretched over four months with the diesel front-loaded, and an executive order letting truckers run red-dyed diesel through year-end. Brent slid toward $98 on the news. Those are bridges, and the rate path rests on them. A floating-rate borrower who needs the path to be kind in 2027 and 2028 is holding a view on Hormuz whether or not it admits to one.

The minutes arrive at 2 p.m. today, an hour after the Treasury sells $39 billion of 10-year notes. Neither will tell me what a seven-month-old company's GPUs are worth in 2031.

Our counter, since you will ask: 13%, or 11% with a parent guarantee, or 11% on the day a CLO bid shows up. The bond market is shut Monday for Columbus Day while stocks trade, which hands the equity side one more free session to disagree with me before your books close on Wednesday. I'd enjoy being wrong in public. I just won't be wrong with $5 billion of other people's money.

Send the next one when someone has found a guarantor.

Regards,
Credit