AI Cloud Provider Lambda Taps Loans for Nvidia-Tied Chip Deal

Lambda Inc., an AI cloud-computing provider backed by Nvidia Corp., is selling a leveraged loan to finance a chip deal as the risky debt market becomes a new front in the borrowing binge to finance the artificial intelligence buildout.

The company, part of a group dubbed neoclouds that rent access to microchips and other AI infrastructure, is selling a $917 million GPU loan, or graphics processing units. It follows a novel financing by CoreWeave Inc. earlier this year, which was the first of its kind to finance chips in the institutional leveraged loan market.

The Lambda debt will help finance the purchase and installation of GPUs and other infrastructure, as part of a contract with Nvidia, according to a person with knowledge of the matter. Order books have reached nearly $2 billion after a pre-marketing effort, another person said.

Wall Street banks and technology firms are scouring every corner of the capital markets to finance AI expansion, raising nearly $600 billion of debt globally since last year, according to Bloomberg-compiled data.

Click here for Bloomberg News’ AI Debt Tracker

CoreWeave has been a pioneer in the loan market, selling debt backed by customer contracts for microchips from firms including OpenAI in May. More recently, CoreWeave was forced to pay a hefty yield on another loan deal backed by different customer contracts that significantly increased its borrowing costs.

Read More: CoreWeave Heralds New AI Borrowing Frontier With GPU-Backed Loan

The Lambda debt is being pitched at an interest rate of as much as 3.75 percentage points over the benchmark rate and a discounted price of 99 cents on the dollar, the person said, asking not to be identified discussing a private transaction.

The debt has a relatively short maturity of 4.4 years, which is atypical for institutional loans that usually have a seven-year life. The deal is fully amortizing so that the debt will be repaid over a period of roughly four years, matching the loan’s maturity, the person added.

Amortization is a type of protection that investors have been seeking, and in this case means lenders avoid any refinancing risk. The loan also has other investor-friendly features that would require the borrower to pay a penalty if it opts to redeem the debt early, the person said. That type of structure is more like a bond deal.

A lender call for the loan kicked off Monday at 10:30 a.m. New York time, and commitments are due on Thursday, the person said. Morgan Stanley is leading the transaction, which will be issued by entities known as Lambda Compute II LLC and Lambda Cloud Canada Inc, the person added.

Representatives for Lambda and Morgan Stanley didn’t immediately respond to requests for comment.

California-based Lambda named Sprint veteran Michel Combes as its next chief executive officer earlier this year as part of a management overhaul aimed at positioning the startup for growth. Founded in 2012, Lambda has held preliminary discussions with bankers about an IPO.

The company has focused exclusively on North America — and with only Nvidia’s chips — but it’s starting to build its own data centers in addition to relying on others’ facilities.