Wall Street banks carry risks if CoreWeave defaults on its $52 billion debt burden.
Call it a sign of the times: A JPMorgan analyst is looking into the exposure banks will have if CoreWeave defaults on its debts.
To be clear, the conclusion is that it won't be much. CoreWeave has a $52 billion debt burden, but banks have "well managed and very well secured" exposures to it, according to JPMorgan analysts led by Kian Abouhossein.
CoreWeave is one of the largest neocloud providers, providing access to the computing power from Nvidia and other companies' AI chips. Most of its revenue comes from the so-called hyperscalers, including Microsoft, with their own data centers, but also leasing access.
CoreWeave's five-year credit-default swaps, at nearly 1,100 as of Monday, imply a roughly 50% to 60% probability of a default at some point over the next five years. CoreWeave's stock (CRWV), down 4% in premarket trade, has slumped 30% over the last month.
The JPMorgan team said banks have helped to structure what are called delayed-draw term loans, or DDTLs. CoreWeave can draw from those credit lines, either based on timelines or project milestones, such as the completed construction of a data center. That way, CoreWeave pays interest only on the drawn elements.
The analysts identified a host of banks involved in the DDTL market - U.S. investment banks, European firms including Barclays and Deutsche Bank, and Asian banks including Mitsubishi UFJ and Mizuho. The large U.S. investment banks as well as Mitsubishi UFJ likely have exposures in the range of $1 billion to $3 billion each. The other banks will have less than $500 million, the analysts said. The analysts said these are just guesses based on the number of deals banks have been involved in and the traditional 10% to 15% holding of a syndicated loan.
More good news for banks: CoreWeave's maturity schedule is not concerning, with only 17% due next year and 42% beyond 2030.
The DDTL notes are floating rate but largely hedged with swaps. The analysts noted that not only do lenders have a lien on the physical GPUs, but they have contractual demand backing the loan.
There is a cash-flow mismatch, the analysts conceded.
CoreWeave is burning cash and the demand only turns into positive inflows over time. "In our view, the key risk facing banks is the cash flow mismatch in the AI-capex cycle," they said.
-Steve Goldstein
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