QTS Expands AI Loan to $3.25 Billion, Drops $1 Billion Bond Sale

Wall Street banks are increasingly turning to the U.S. leveraged-loan market to finance the artificial intelligence infrastructure boom as a shortage of buyout-related transactions leaves credit investors searching for new deals. QTS Realty Trust, a data center operator owned by alternative asset manager Blackstone NYSE:BX, increased the size of its planned term loan from $3 billion to $3.25 billion and dropped plans for a separate $1 billion bond sale, according to people familiar with the transaction. JPMorgan Chase NYSE:JPM, a major U.S. banking group, is leading the loan offering. The transaction is backed by a portfolio of QTS data centers known as Project Magnolia, with proceeds expected to repay construction financing and other existing debt while also covering additional corporate costs.

QTS has already raised more than $6 billion through public and private investment-grade bonds over the past year and has issued securities backed by data center cash flows. The latest transaction follows a $3.1 billion loan completed in May by CoreWeave NASDAQ:CRWV, an artificial intelligence infrastructure company, while Bitcoin miner TeraWulf NASDAQ:WULF could potentially enter the leveraged-loan market with its first such deal. Companies including e-commerce and cloud-computing group Amazon NASDAQ:AMZN and privately held aerospace company SpaceX have raised more than $335 billion globally so far this year, mostly through bonds. Investors may view the QTS transaction as an early sign that companies financing the AI buildout are beginning to diversify beyond traditional bond markets.

QTS is offering investors an interest rate of 2.25 percentage points above the U.S. benchmark, while Moody's NYSE:MCO, a credit ratings and financial analytics company, assigned the transaction a Baa3 rating at the lower end of investment grade. This structure could appeal to collateralized loan obligation managers seeking higher-rated assets, particularly as similarly rated bonds offer an average spread of 94 basis points over U.S. Treasuries. Unlike some debt offerings used to finance data centers that have not yet been built, the QTS loan is supported by 12 operational facilities already generating cash flow from tenants including software and cloud-computing company Microsoft (MSFT). That operating asset base may give credit investors greater repayment visibility while providing the leveraged-loan market with a new source of transactions during a period of limited merger-and-acquisition financing.