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- Blue Owl Capital failed to secure financing for a $4 billion data center project in Pennsylvania.
- One lender said the lack of interest was due to CoreWeave’s creditworthiness.
- AI data center investments face financing challenges due to concerns about credit risk.
Blue Owl Capital, a major investor in the data center boom, has been unable to arrange financing for a $4 billion data center it is developing in Pennsylvania after urging lenders to help finance the project in recent months.
The facility, located 80 miles west of Philadelphia in the city of Lancaster, will be operated by CoreWeave, an AI cloud computing services provider that has become a closely watched name in the AI race for its rapid expansion — and the billions of dollars in high-interest-rate debt it has taken on to fuel that growth.
An executive who arranges debt for major data center deals told Business Insider that the lack of interest in the Lancaster project was due to growing wariness among lenders and investors about having too much exposure to AI players with credit below sterling.
CoreWeave has a below investment grade rating of B+, according to S&P Global Ratings.
“We’ve seen it. We’ve succeeded,” a senior executive at a large boutique bank told Business Insider.
A Blue Owl spokesman said the company “considered” third-party financing for the Lancaster project “as we do with any deal as we explore alternatives before choosing the most attractive path forward.”
The spokesman added that the project, which he said was already under construction, was “fully funded, on time and on budget.”
It is unclear whether Blue Owl is financing the construction entirely with its own capital. If Blue Owl is unable to raise debt for the Lancaster development, it could be on the hook for a potentially huge cash outlay to pay for the data center construction.
The situation demonstrates the complexities and risks involved in financing the massive construction of AI computing infrastructure.
Difficulties in raising debt for the Lancaster project will be concerning, said Brennan Hawken, an equity analyst at BMO Capital Markets who covers Blue Owl.
“I’m not familiar with this deal, but if there’s a struggle to find debt financing, that’s a red flag I’d like to dive into,” Hawken said.
Business Insider previously reported that major banks recently had difficulty selling portions of $38 billion in debt to finance the construction of two data center complexes that Oracle will be based on. Banks often sell portions of these larger liabilities to other lenders to spread the risk and make quick profits as well.
The slowdown in interest in participating in this financing was due to concerns about Oracle’s massive spending on artificial intelligence and whether the technology company’s credit rating might be affected by such expenditures. Oracle has since sought to cool the lending market, announcing it would raise up to $50 billion in cash from stock and bond offerings in order to “maintain a strong investment-grade balance sheet.”
One of the most innovative financiers of the boom period
Last summer, CoreWeave announced it would lease 100 megawatts of initial capacity at its Lancaster data center and potentially expand its commitment to 300 megawatts. The company said it will pump up to $6 billion into the project to supply it with chips and other cloud infrastructure.
A month later, in August, Chirisa Technology Parks announced that it would partner with Blue Owl and Machine Investment Group to develop the project. The partnership said it will provide $4 billion in financing, an amount separate from CoreWeave’s investment, to support construction of the project’s data center facilities.
In the fall, Blue Owl began purchasing the development to potential lenders, a person familiar with the effort said.
Blue Owl has been one of the most innovative financial engineers in the data center building boom. Last year, it struck a deal to partner with Meta on the ownership of a large data center campus that Meta will build and operate in Louisiana. Blue Owl used Meta’s strong credit to raise $27.3 billion in investment-grade corporate bonds in exchange for its equity stake in the project, proceeds that will be used to help pay construction costs, according to S&P.
Blue Owl could arrange a similar type of vehicle that could try to leverage the credit of an investment-grade client of CoreWeave who might use the Lancaster facility or Nvidia, the chipmaker that has bought significant stakes in CoreWeave. It’s also possible to raise cash for construction debt by tapping large institutional investor clients to put the loan together, Hawken said.
Blue Owl is facing questions after reports surfaced that it had permanently halted withdrawals from a private retail credit fund.
Much of the development of large-scale data centers has sought to take advantage of the strong credit ratings and deep pockets of large technology partners.
Fluidstack, a CoreWeave peer, announced a deal last year to lease a 168-megawatt data center in Colorado City, Texas, which will be built by cryptocurrency mining company Cipher. Google, which is leasing Fluidstack for the project, said it would guarantee about half of the $3 billion owed under the 10-year lease. Fluidstack signed another similarly sized lease in December with data center builder TeraWulf that will also provide “investment-grade credit support.”
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