Nvidia(NVDA.US)16-Year Long-Term Lease Agreement Boosts Data Center Bond Issuance, AI Infrastructure Lending Boom Shifts to the "Junk Bond" Market

NVIDIA (NVDA.US) is expected to lease a data center built with $3.8 billion from a junk bond issuance. This move further fuels the borrowing boom around AI infrastructure.

According to sources, an entity supported by asset management firm Tract Capital will raise funds through bonds to support part of the construction of a 200-megawatt data center and substation in Story County, Nevada.

On Thursday afternoon, the size of the bond deal increased by $150 million, indicating strong market demand. Sources added that current pricing discussions expect a yield of around 6%.

In recent months, data center developers have been tapping into the high-yield bond (junk bond) market to fund new facilities. Previously, two cryptocurrency miners—Cipher Mining Inc. and TeraWulf Inc.—raised funds with Google’s support; Applied Digital Corp. also raised capital for related facilities, which will rely on bonds rated as junk, with CoreWeave Inc. as the main tenant.

According to bond issuance documents, NVIDIA’s initial lease term is approximately 16 years, with the blue-chip company holding two 10-year renewal options.

Many borrowers, from Oracle to Meta, have raised billions of dollars in the investment-grade bond market to build facilities supporting the AI boom, but deals initiated by junk-rated companies are relatively rare.

Tract Capital is an alternative asset management firm focused on digital infrastructure, managing about $6 billion in assets. The company recently launched a strategy called “Fleet,” aimed at building new data centers for large-scale enterprises. Fleet I is its first fund and the holder of the borrowing entity SV RNO Property Owner 1.

Documents show that Fleet I initially planned to invest about $620 million in equity to support the project. The proceeds from the bond issuance will be used to reduce the equity contribution.

The deal is expected to be priced on Friday. The documents indicate that JPMorgan Chase is the lead underwriter, with Morgan Stanley serving as co-lead underwriter.

While NVIDIA operates its own data centers, it also leases space from cloud providers like Amazon’s AWS and Microsoft’s Azure for additional capacity. NVIDIA uses AI to design chips and computers, and the company states that this process is becoming increasingly complex and requires more powerful computing power. Additionally, NVIDIA develops AI models and software products, many of which are open source.