JPMorgan (JPM.US) and Goldman Sachs (GS.US) have taken a rare step to limit their exposure to a $5 billion loan sale for AI startup Volta Infrastructure Holdings Ltd., as investors demand higher yields for riskier debt tied to the artificial intelligence boom.

These two banks are leading the loan issuance for Volta, a newly established AI cloud company. According to people familiar with the matter, the two banks underwrote a $1.3 billion term loan for Volta, while a $3.7 billion chip loan was not underwritten by the two banks—a move designed to protect themselves from potential risks. Volta's debt is being pitched to investors at a yield of approximately 11%, one of the highest borrowing costs in the leveraged loan market, which has become a popular channel for AI financing. Notably, the deal is unrated, which would typically prevent collateralized loan obligations (CLOs)—the largest buyers of such debt—from purchasing these loans. Lenders typically provide underwriting for the entire debt package to assure borrowers that the deal will be financed regardless of whether investors subscribe. Underwriting is a lucrative business for lenders, usually tied to acquisition transactions, but if the debt is sold below the agreed price with the borrower or fails to sell at all, lenders bear the risk of being stuck with it. Debt commitments for AI deals are even rarer. Banks are wary of being hit again as they were in 2022, when rapidly rising interest rates froze the market, leaving large amounts of unsold debt stranded on lenders' balance sheets and causing them massive losses.

Addressing the Risks

Meanwhile, people familiar with the matter said that financing the AI boom—especially arranging deals for newly established or untested companies—has required lenders to adopt less conventional underwriting structures in the leveraged finance market. They added that banks are trying to navigate potential risks and ensure they are not caught off guard. Volta belongs to a category of AI companies known as "neoclouds," which rent out chips and other AI infrastructure. The company's deal will be used to finance a data center complex in Norway, which will be managed by Volta Infrastructure in partnership with Bitdeer (BTDR.US), a bitcoin mining company that operates data centers. People familiar with the matter said Anthropic PBC has signed a six-year agreement for the computing capacity at the site. The $1.3 billion term loan will be used to pay Bitdeer for the use of the data center. The $3.7 billion chip loan will be used to purchase approximately 36,000 graphics processing units (GPUs) manufactured by Nvidia (NVDA.US).

Wall Street has thrown its full support behind AI buildout, with deals for neocloud companies like CoreWeave Inc. (CRWV.US), Lambda Inc., and Crusoe Inc. proving that lenders are happy to finance chip procurement. However, these earlier deals had lower borrowing costs than Volta's transaction. Volta was founded earlier this year by Ricard Boada and Sofia Gumuscio, both of whom previously worked in the infrastructure business unit of Brookfield Asset Management (BAM.US). The company aims to make Nvidia's cutting-edge chips more affordable for top AI labs and smaller startups. The subscription commitment deadline for the deal is October 14. JPMorgan began testing investor interest for the loan in August.