Key Takeaways
- • CoreWeave co-founder Brannin McBee, in an interview with the Financial Times, said the insurance-industry capital behind CoreWeave's debt "is unlimited," while the company's stock fell as much as 28% in a week of rising default-insurance costs.
- • CoreWeave carries roughly $35bn of debt on its balance sheet alone, against a $39bn valuation cited in the piece, and one of its bonds traded at distressed levels per the WSJ.
- • CoreWeave debt is reportedly priced for a 60% chance of default in five years, according to Bloomberg.
- • Partners Group, the Swiss private equity firm, is cutting or reassigning dozens of jobs in its private equity division, per Bloomberg, while stating its team size "remains consistent with its long-term average."
- • The co-founders have already sold $3.3bn of CoreWeave shares, according to the article.
Summary
CoreWeave co-founder Brannin McBee, in an interview with the Financial Times, defended the company's financing model as CoreWeave's shares and debt came under pressure. The $39bn "neocloud" provider, a supplier favored by firms such as Jane Street, saw its stock decline as much as 28% in one week amid a surge in the cost of insuring against default on the roughly $35bn of debt it carries on its balance sheet alone. The WSJ reported that one CoreWeave bond was trading at distressed levels.
McBee told the FT that CoreWeave wants its debt to achieve an investment-grade rating so it can borrow from insurers, whose capital he described as "unlimited." According to the FT, which did not directly quote him on the characterization, CoreWeave operates as a financing-driven business. The company owns hundreds of thousands of NVIDIA AI chips and uses them as collateral for loans tied to offtake contracts, under which clients pay to rent GPU clusters not yet built. McBee said cash flows from the chip subsidiaries first cover interest, principal and running costs, with the remaining 20 cents of each dollar going to the parent. He acknowledged that offtake structures are typically used to finance power plants, and said he helped pioneer the approach to GPU financing with bankers at Morgan Stanley and MUFG.
Doubts persist about the durability of the debt. Open questions include whether the chips become obsolete before contracts end, whether short-term customers shift to other data-center providers, and whether borrowing costs continue to rise. McBee said the debt structure is not "scary debt at all," and Bloomberg reported that CoreWeave debt is priced for a 60% chance of default in five years. Deutsche Bank, per Bloomberg, said it struggled to find company-specific factors justifying the recent selloff. CoreWeave shares recovered after NVIDIA CEO Jensen Huang said "CoreWeave's strength is improving every day." The co-founders have sold $3.3bn of CoreWeave shares.
Separately, Bloomberg reported that Partners Group has cut or reassigned dozens of jobs in its private equity division. The Swiss firm, which had weak deal performance in 2021 and 2022, said in a statement to Bloomberg that its team size "remains consistent with its long-term average" and that it has strengthened senior operational capabilities over the past year. It said the buyout environment requires "greater operational intensity" to create long-term value and drive distributions.
McBee told the FT that CoreWeave wants its debt to achieve an investment-grade rating so it can borrow from insurers, whose capital he described as "unlimited." According to the FT, which did not directly quote him on the characterization, CoreWeave operates as a financing-driven business. The company owns hundreds of thousands of NVIDIA AI chips and uses them as collateral for loans tied to offtake contracts, under which clients pay to rent GPU clusters not yet built. McBee said cash flows from the chip subsidiaries first cover interest, principal and running costs, with the remaining 20 cents of each dollar going to the parent. He acknowledged that offtake structures are typically used to finance power plants, and said he helped pioneer the approach to GPU financing with bankers at Morgan Stanley and MUFG.
Doubts persist about the durability of the debt. Open questions include whether the chips become obsolete before contracts end, whether short-term customers shift to other data-center providers, and whether borrowing costs continue to rise. McBee said the debt structure is not "scary debt at all," and Bloomberg reported that CoreWeave debt is priced for a 60% chance of default in five years. Deutsche Bank, per Bloomberg, said it struggled to find company-specific factors justifying the recent selloff. CoreWeave shares recovered after NVIDIA CEO Jensen Huang said "CoreWeave's strength is improving every day." The co-founders have sold $3.3bn of CoreWeave shares.
Separately, Bloomberg reported that Partners Group has cut or reassigned dozens of jobs in its private equity division. The Swiss firm, which had weak deal performance in 2021 and 2022, said in a statement to Bloomberg that its team size "remains consistent with its long-term average" and that it has strengthened senior operational capabilities over the past year. It said the buyout environment requires "greater operational intensity" to create long-term value and drive distributions.
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