Fermi's $6.5 billion TensorWave lease must close by October 31, and the financing is still not raised
Fermi's first tenant lease at Project Matador must close by October 31 or either party can walk away, and three days out there is no closing, no second extension and no announced guaranty. The stock sits near its lows, a $350 million convertible is in the market, and the phase-one financing that closing requires has not been raised.
Vincent Jiang · 4 min read
The founder sold, then the company came for more money
On October 20 Toby Neugebauer, the Fermi co-founder+4.58% — the Fermi co-founder, up 4.58 percent today whose family trust and investment vehicle hold a 10% stake, sold 420,749 shares at prices between $3.00 and $3.095, about $1.3 million, and reported the sale to the SEC two days later 1. That same week the stock touched a 52-week low of $2.99 3.
On October 22 the company put $350 million of convertible senior notes up for sale, and the shares fell more than 18% after hours 2. On Friday, October 31, the lease meant to become Fermi's first real revenue either closes or it does not 4. Three days out, no closing and no second extension has been announced.
The stakes: $6.5 billion of contracted revenue, still on paper
The lease was signed on August 10 5. TensorWave, an AI cloud that runs only on AMD+1.55% — AMD, up 1.55 percent today Instinct GPUs, agreed to take 222 megawatts of total power, 156 megawatts of it critical IT load, at Project Matador, Fermi's behind-the-meter private-grid campus in Carson County, Texas 5.
The paper value is about $6.5 billion of contracted revenue over a 15-year initial term, rent rising 2.5% a year, two five-year renewals, and phased delivery from the fourth quarter of 2027 into early 2028 5. Fermi, which has spent more than $1.5 billion on a campus it expects to scale to 17 gigawatts, puts phase-one operating margins at 75% to 80%, a company estimate 56.
The complication: a backstop that has not started and money that has not arrived
A lease this size does not close on a signature. It closes when work letters and guaranties are executed, boards approve, and project financing sufficient to build the leased facility is secured, which is why the parties pushed the closing date from September 30 to October 31 on September 22 4. CEO Lee McIntire said then that the remaining work was finalizing the lease guaranty with an investment-grade counterparty 4.
On October 13 AMD signed credit support, and Fermi called it a key step toward project financing 5. Read the fact sheet Fermi furnished to the SEC and the support looks different from a guaranty: AMD's obligation begins only after construction is complete and rent starts on the final delivery phase, and it ends early if TensorWave or its guarantor holds investment-grade ratings for 12 straight months 5. It backs financing. It is not the financing, and as of October 20 that phase-one financing had not been raised 5.
Down 71% this year, then a $350 million note sale
From $30.02 to under $3 inside a year
Data
| FRMI share price | |
|---|---|
| 52-week high | $30.02 |
| Oct 20 close | $2.99 |
| Oct 26 close | $2.54 |
| Oct 28 intraday | $2.65 |
The market has been repricing the wait. The stock closed at $2.99 on October 20, a 52-week low at the time 3; its 52-week low now stands at $2.44 7. It last closed at $2.54 on October 26, down about 44% in a month and about 71% this year 8.
Into that slide Fermi is marketing $350 million of notes due 2031, plus a $52.5 million option for the initial purchasers, with proceeds partly earmarked for general corporate purposes 2. The whale move sits with Neugebauer, who sold at an average $3.04 into the weakness 1. The slide itself is not new; it was underway at $3.42 two weeks before the notes offering 9.
The bull case rests on AMD's name and TensorWave's cap
The bull case is not nothing. AMD, rated A by S&P and A1 by Moody's+0.63% — Moody's, up 0.63 percent today, put its name on the credit support and signed a framework for expansion past 650 megawatts 5. TensorWave has more than 2 gigawatts of secured capacity across its platform and raised a $350 million Series B with AMD among its investors 5.
Shares jumped 14% on the AMD news on October 13 7. Both companies said on September 22 they remain "fully committed" 4. But that commitment was the same sentence that came with the first extension a month ago, and the guaranty McIntire called the remaining work is still not done 4. The lease's own risk disclosure says either party may terminate if the closing conditions are not satisfied 4.
The close, the money and the earnings call
Three things settle this. The close, on Friday, October 31 4. The money, whether the $350 million note deal prices and at what coupon 2. And the earnings call on November 12, where Fermi must account for a quarter in which its only signed lease had not closed 5. Either side can walk on Friday. The $1.5 billion already poured into the dirt cannot 6. Deep dive below for the documents behind each number.
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