Comparing the Price of AI Debt

AI infrastructure does not have one borrowing rate. A fixed coupon, a spread over SOFR, a marketed yield and a borrower's net-cash cost measure different things. Ranking them as though they were interchangeable can misidentify both the expensive financing and the reason it is expensive.

The practical comparison starts with the money available to the borrower and the dates on which it must leave. The credit package matters too, but a lower quoted rate does not, by itself, identify what a guarantee is worth.

What the disclosed prices actually measure

These are dated terms and indications, not executable October quotes on an identical asset.

The table does not establish a ranking of borrower all-in costs. That needs dated draws and amortization, the reference-rate path or hedges, allocation of discounts, fees and any restricted proceeds. Weighted average life is the principal-weighted repayment time; it is neither final maturity nor a complete repayment calendar.

IREN's separate 3.31% financing metric illustrates why denominators matter. Its June announcement treats the $1.94bn customer prepayment as a zero-rate funding source in the combined weighted-average funding balance, excluding fees. That is not the notes' coupon, and it does not prove that customer capital has no economic cost. Its 6.00% blended debt-interest figure also excludes fees. Issuer methodology, notes 1–3.

Less interest can coexist with a higher annualized cost

Consider a separate hypothetical $100m loan with an 8% annual coupon and four equal one-year periods. Interest is paid on opening face principal. The investor funds the stated issue price at year zero, and the borrower bears any discount. All scheduled payments are made; there is no default, prepayment, tax or refinancing.

The second and third rows both deliver $97m initially. Amortization cuts coupon cash by $12m, but returns the principal sooner: weighted average life falls from four years to 2.5. The same $3m discount is borne over a shorter period of capital use, so the annualized rate rises.

That is not evidence that amortization is worse. Earlier repayment reduces the terminal balloon and can match a wasting asset or contracted receipts. It also demands more cash earlier: first-year debt service in this example rises from $8m to $33m. The choice depends on the project's cash calendar and remaining funding need, not the interest total alone.

In the fourth row, the borrower receives $96m after the third-party fee. The investor still advances $97m and receives the same future payments, so its modeled yield remains 9.4313% while the borrower's cash-flow cost rises to 9.9249%. Investor yield and borrower cost need not match. Actual syndication discounts cannot be assigned to the borrower this way without checking who bears them.

The calculator solves initial net proceeds equal to the present value of the scheduled payments. It does not add an issue discount mechanically to a coupon, and it does not treat these results as risk-adjusted returns or actual issuer pricing.

A floating spread needs a benchmark path

Keep the amortizing, price-97 example and assume its 8% coupon initially consists of a 4% benchmark plus a 4% spread. Raising the benchmark by one percentage point in every year raises the modeled annual cost to 10.4570%. A stipulated coupon path of 8%, 7%, 6% and 5% produces 8.4871% instead.

These are sensitivities, not rate forecasts. They show why a spread can remain unchanged while cash cost moves. A hedge would add its own cash flows and terms. A comparison across closing dates must also separate changes in the benchmark from changes in credit pricing and structure.

Price the period before drawing as a separate cash requirement

Volta's October 9 report describes a ticking fee of 45% of the drawn spread and a 60-day holiday. The public record retained in our dated update does not settle its payer, calculation base, accrual conventions or exceptions.

For an explicit illustration only, assume the borrower pays on a constant $100m undrawn base, the spread is 625bp, the holiday is non-retroactive, and there are 30 chargeable days on a 360-day basis:

$100m × 6.25% × 45% × 30 / 360 = $234,375

The assumed fee rate is 2.8125% annually, not 45% of principal. With 120 chargeable days the same assumptions produce $937,500. Neither amount is a verified Volta bill. Neither has been silently included in the loan rates above: a full pre-draw cost calculation needs its payment date and the eventual financing cash flows.

This matters to a builder even before a yield can be computed. Capital promised for a later deployment can carry costs while it is still unavailable for construction. Someone must fund those costs as well as the work that makes the loan drawable.

Use the comparison to improve the financing decision

The constructive question is which combination of price, repayment speed and availability fits the asset. Stronger offtake or credit support may broaden the lender base; faster amortization may reduce later exposure; a delayed draw may avoid interest on idle funds. Each benefit has a price or cash-timing consequence that should be examined alongside it.

Cross-deal rates cannot isolate the causal value of a guarantee when dates, counterparties, security, terms and market status differ. A same-deal alternative quote or a properly controlled pricing study is a better test. The useful first product is a transparent comparison, not a claim to have priced an undisclosed contract.

Reproduce and adapt the calculations

Download the evidence, assumptions, calculator, results, verifier and readme. Save all six together. The package contains six loan scenarios and three separate fee examples; it preserves unknown inputs rather than turning them into free financing.

This extends the cash-flow-rate approach in our convertible settlement study without changing that study's dates or assumptions. Questions about a particular price definition are welcome at research@aiinfracredit.com.