CoreWeave’s debt blunder  | USAEMALL.com

One scoop to start: Elliott Management held talks with private equity groups in recent months to gauge interest in buying Bayer’s consumer health business, as the US hedge fund considered reviving a pressure campaign at the German conglomerate.

And a big job move: James Gorman, the former chief executive of Morgan Stanley, is to join General Atlantic as a strategic adviser as the US-based private equity group prepares a highly anticipated initial public offering.

In today’s newsletter:

• CoreWeave’s technical default

• A particularly painful bonus day

• Family Dollar’s new owners

CoreWeave: Hot IPO or the WeWork of AI?

At first glance, CoreWeave has all the hallmarks of a fast-growing tech company on the cusp of a blockbuster initial public offering.

There’s the 11-figure valuation, the list of 14 bookrunners that reads like a who’s who of Wall Street, and the alluring pitch of buying shares in a provider of picks and shovels to the artificial intelligence boom.

Having blue-chip names such as Microsoft as customers should in theory de-risk the investment case.

But take a closer look and financial engineering, not software, is what primarily drives this company.

CoreWeave buys graphics processing unit chips from Nvidia and rents them out to other Big Tech companies to power their AI data usage (including, um, Nvidia itself).

The New Jersey-based group is also a creature of the private credit boom, having borrowed billions of dollars from the likes of Blackstone to fuel this high-stakes game of GPU arbitrage.

Underneath all that, it’s sitting on a huge amount of debt. DD’s Tabby Kinder and Rob Smith last week broke down how CoreWeave faces a monumental $7.5bn of debt repayments in the next two years.

And even during the AI boom, things haven’t been smooth sailing. Rob, Tabby and DD’s Antoine Gara on Wednesday broke the news that CoreWeave violated several key terms of a $7.6bn loan last year, triggering so-called technical defaults.

The company’s largest lender Blackstone was willing to give CoreWeave a pass for what it viewed as administrative errors at a fast-growing company, waiving the defaults with little drama.

But some view it as troubling that what’s essentially one great big financing company was unable to stay within the lines of multibillion-dollar credit agreements. Given that this was one of the largest private credit deals, does that make this the largest private credit default in history (albeit a technical one)?

Investors are watching other risks. Some sceptical observers have flagged similarities to the asset/liability mismatch that beset WeWork, with customer contracts that are shorter than its long-term lease liabilities on data centres. That could prove a combustible mix if some air comes out of the AI bubble.

The shape of an IPO book is hard to gauge from the outside. Some investors tell DD that they’re passing mostly because they think it’s such a hot ticket their orders won’t be filled. Others claim they hear rumblings of weak demand.

One data point that could cut through the noise, however, is the stock price of Core Scientific. The data centre operator counts CoreWeave as a top customer and, like its near namesake, previously pivoted from crypto to AI. Its stock is down 47 per cent this year having fallen nearly 12 per cent on Wednesday alone.

With CoreWeave set to price its shares on Thursday evening, we’ll soon know whether that fall is an augur of an IPO flop or not. Do let DD know whether you think it’s a can’t-miss, or must-avoid, listing.

HSBC’s firings on bonus day

Investment bankers wait all year for bonus day to roll around when they learn just how much they are valued by their employer.

But HSBC’s investment bankers based in London were in for a rude awakening last month when many of them learned that they would be fired and wouldn’t get a bonus for the work they had done in 2024 . . . on bonus day.

The job losses didn’t necessarily come as a surprise since new chief executive Georges Elhedery had already announced the bank would close its mergers and acquisitions advisory and its equity capital markets businesses outside Asia and the Middle East. 

But getting fired on bonus day — without a bonus — hit a nerve.

“It’s very unlike HSBC,” one person with knowledge of the matter said, adding that the bank had “a reputation for looking after [its] people”.

From Elhedery’s point of view, it makes sense. He’s on a serious cost-cutting drive and has told investors he plans to save $300mn in 2025 and cut $1.5bn from its annual cost base by the end of next year.

But that doesn’t lend much comfort to the investment bankers who were expecting to receive a chunk of their bonus and who may have seen that the bank set out a pay package for Elhedery worth up to £15.3mn, rising to £19.8mn if the bank’s share price jumps 50 per cent.

That’s significantly higher than his predecessor Noel Quinn, who had struggled to get headcount under control.

HSBC has also laid off investment bankers in Asia — but things could have been worse there. Elhedery had also put its investment banking business in Asia and the Middle East under review but decided to keep it.

Family Dollar’s painful decline

Dollar stores are typically prime investments during tough times. When shoppers’ wallets are stretched thin, they’re likely to turn more often to the cheap array of products that such stores have on offer.

But in recent years, those in the US have seriously struggled.

On Wednesday, the ultimate confirmation of that arrived when Dollar Tree announced it had agreed to sell its Family Dollar chain for just $1bn — a steep, steep discount from the $8.5bn it purchased the business for a decade ago.

When Dollar Tree agreed to buy Family Dollar in 2014, the deal married two of the country’s biggest discount chains. Activist investors Carl Icahn and Nelson Peltz had pushed for the retailer to sell itself, and they succeeded in a coup.

While Family Dollar and Dollar Tree are in the business of cheap goods, Wall Street advisers made a hefty sum on the deal. Morgan Stanley, which advised Family Dollar, made at least $42.9mn as part of the transaction, according to regulatory filings.

At the time, Dollar Tree beat out its rival Dollar General (we know, there are a lot of dollars to keep track of) to buy the company. But that ultimately wound up a miscalculation.

The merger subsequently led to billions of dollars of impairment charges and store closures.

All the while, more activist investors swept in. Dollar Tree soon became the target of activists such as Starboard and Mantle Ridge.

Now, Family Dollar’s moving into Wall Street hands, with Brigade Capital and Macellum Capital agreeing to buy the company.

Brigade has been circling the retail space for a potential target for some time. The firm — which is largely known for getting involved in thornier credit investments — was one of the bidders interested in Macy’s last year.

Several months later, it has finally landed a retail target.

Job moves

• Blackstone has hired Dominic Ashcroft as a managing director and head of European origination. He’ll be based in London. He was previously head of leveraged finance for Emea at Goldman Sachs, where he had worked for more than two decades.

• Linklaters has elected 34 partners and promoted 48 lawyers to counsel globally. They work in practice areas including litigation, finance and capital markets.

• Simpson Thacher has hired Adam Aderton as a partner in its government and internal investigations practice. He previously worked for Willkie Farr.

Smart reads

Ghost hotel The 20-storey El Algarrobico hotel in Spain is a deserted monument to the struggle between environment and development, the FT writes. Why can’t they knock it down?

American euphoria CEOs and investors started the year jubilant that Donald Trump would usher in a “golden age” for corporate America, the WSJ reports. That one-time joy is morphing into distress.

High-wire act On the FT’s latest Behind the Money podcast, DD’s Amelia Pollard digs into why private equity group Sycamore Partners’ $24bn deal for Walgreens Boots will be its biggest challenge.

News round-up

Jefferies results miss estimates in sign dealmaking remains subdued (FT)

Berlusconoi’s MFE launches €1.3bn takeover bid for ProSieben (FT)

Shell seeks to close valuation gap with US rivals (FT)

British Steel’s Chinese owner rejects UK government subsidy offer (FT)

NatWest and Nigel Farage settle ‘debanking’ dispute (FT)

Axel Springer board member resigns after accusing Politico of leftwing bias (FT)

Porsche family vehicle eyes defence shareholding as third ‘core investment’ (FT)

Mercuria takes on Trafigura and Glencore in metals trading drive (FT)

Nissan’s new chief warns of ‘no taboos’ in quest to revive carmaker (FT)