Morgan Stanley Pitches Leveraged Loan Market to Data Center Clients; CoreWeave's Debut Deal Attracts $19 Billion in Orders
Claire Weston
Morgan Stanley is steering AI data-center developers toward the leveraged-loan market, a channel historically reserved for buyouts. The first deal — a $3.1 billion CoreWeave note — drew over $19 billion in investor orders, signaling that a new funding pipeline for AI infrastructure is opening fast.
Why is Morgan Stanley pushing data-center clients toward leveraged loans?
AI infrastructure spending keeps outpacing what the bond market alone can supply. Over recent months Morgan Stanley has advised clients to tap leveraged loans instead of bonds for their next round of financing.
Leveraged loans — floating-rate debt underwritten by investment banks and sold on to institutional investors — have traditionally funded leveraged buyouts, not data centers.
This means → the investor base for data-center financing is expanding from bond buyers to loan buyers, effectively doubling the available channels.
Why did CoreWeave's debut deal attract such massive demand?
In May, Morgan Stanley issued $3.1 billion in leveraged-loan notes on behalf of CoreWeave. The proceeds fund chip purchases for OpenAI and Cohere.
The deal drew more than $19 billion in orders — an oversubscription ratio above 6×. CoreWeave CFO Nitin Agrawal called investor appetite "quite significant."
This means → demand for AI-linked credit assets far exceeds current supply. Capital is chasing deals, not the other way around.
Why are CLO managers so hungry for these loans?
CLOs — collateralized loan obligations, structures that pool loans and slice them into tranches sold to different investors — hold roughly two-thirds of the U.S. leveraged-loan market, about $1.4 trillion in total.
CLO managers have recently struggled to find quality loans to buy. AI is threatening traditional software companies, making software-company buyout debt less attractive.
Data-center loans are backed by leases from major cloud providers. CoreWeave's deal priced at SOFR + 450 basis points. In plain terms = big-name tenant contracts underpin the cash flow, and the yield is above average — a good fit for CLO portfolios with empty shelf space.
Loans versus bonds — how is the data-center funding mix shifting?
Data-center financing has relied mainly on bonds. Last year Morgan Stanley helped Terawulf issue $3.2 billion in bonds at a 7.75% coupon, and helped Cipher Mining issue $1.4 billion in high-yield bonds at 7.125%.
Morgan Stanley Research estimates that data-center leveraged-loan issuance will reach roughly $15 billion this year, versus about $50 billion in high-yield bonds — bonds remain the primary channel; loans are a supplement for now.
JPMorgan analysts project combined bond-and-loan issuance for data centers will hit $350 billion over the next five years. This reflects a shift from a single funding pipeline to a dual-track model.
How far can this go, and what is the key bottleneck?
The core challenge is loan-covenant design. AI chips depreciate fast and have short useful lives; how covenants protect investors against rapid collateral obsolescence will determine whether this market can keep scaling.
In plain terms = the collateral behind these loans — chips and equipment — can become outdated in two to three years. If a borrower defaults, lenders may recover assets worth far less than the loan balance. How the covenants are written decides whether investors keep buying.
In the near term, leveraged loans remain a complement to bonds. But if covenant structures prove workable, this channel could scale rapidly.
Content is for reference only, not financial advice.