Morgan Stanley said AI-related leveraged debt issuance is likely to remain subdued, with a higher bar for new deals as rising borrowing costs and potential construction delays weigh on market activity. According to Sina Finance, the bank’s latest report put October issuance at $5 billion, all from a single borrower, Volta Infrastructure Holdings Ltd., which raised the funds through a term loan priced at a yield above 11%.
Morgan Stanley expects issuance to remain limited through year-end. The bank’s strategists wrote that after the U.S. midterm elections, companies relying on high-yield bonds and leveraged loans may face more obstacles in securing power supplies and related approvals for new projects. This could change the timing and scale of their investments.
To complete deals, developers may need to pay higher financing costs to compensate lenders for construction risk, repay more principal before refinancing, or first find tenants with stronger credit profiles. As investors scrutinize new projects more closely, financing may be especially difficult for projects backed by lower-rated tenants.