Applied Digital pays its bondholders first. Its shareholders wait behind Macquarie

Applied Digital, a Dallas company that builds data centers for artificial intelligence (AI), has signed about $36.2bn of leases running roughly 15 years, its annual report says. Two buildings are running in Ellendale, North Dakota, and four more campuses are under construction. Little of that rent will reach shareholders soon. Each campus pays first the holders of $6.09bn of secured notes issued by the subsidiaries that own the buildings. Next comes Macquarie Asset Management, which holds $1.8bn of preferred units paying 12.75% in APLD HPC TopCo 2, the holding company above those subsidiaries; TopCo 2 may pay that dividend in extra units rather than cash until Oct. 6, 2035. Applied Digital's own lenders and its shareholders come last. At Aug. 31, $2,909m of the group's $2,950m of unrestricted cash sat inside TopCo 2, the quarterly report filed on Oct. 7 shows, leaving about $41m* outside it.

The shares closed at $18.05 on Oct. 16, valuing the equity at about $5.5bn*. Add debt and Macquarie's units and net off unrestricted cash, and enterprise value is about $11.3bn*. Two things stand between the leases and that equity: a power contract at the flagship campus that is smaller than the load leased there, and $4.26bn of debt that falls due in the fiscal year to May 2031.

A power contract smaller than the leases

At Polaris Forge 1, its Ellendale campus, Applied Digital has leased 400 megawatts of computing load to CoreWeave, which rents out AI computing, on 15-year leases. The state's air permits label the three buildings ELN-02, ELN-03 and ELN-04. ELN-02, 100 megawatts, opened in October 2025, about a year after Montana-Dakota Utilities' 2023 filing expected it to be energized. ELN-03, 150 megawatts, opened in halves on July 1 and Oct. 1, taking live capacity to 250 megawatts, the company said on Oct. 7. ELN-04, another 150 megawatts, is due in 2027.

Montana-Dakota supplies the AI buildings under one electric service agreement, which the North Dakota Public Service Commission approved in case PU-23-322 and amended in case PU-24-332. The amendment raised the limit from 225 megawatts to 350 megawatts and ran the contract to Aug. 31, 2030. No filing on the commission's docket raises it further, and ELN-04 has no power contract of its own on file. With 250 megawatts live, the cap does not bind yet. It bites at full build, once ELN-04 arrives: 400 megawatts of leased load is more than 350 even before cooling and other overhead. A separate 180-megawatt contract, case PU-22-371, serves the older cryptocurrency-hosting building next door.

The contract runs five years, the tariff's maximum, extendable by five with the commission's approval, under section 18 of the agreement in case PU-23-322. It sits under Montana-Dakota's Rate 45, a tariff for large computing loads the utility may interrupt. At Polaris Forge 3, in Center, the utility's filing in case PU-26-235 cites the same five-year limit as it asks the commission to allow 15 years. Ellendale has no such request pending.

Applied Digital has also asked the commission, in case PU-26-155, to let it register its Ellendale backup diesel engines as emergency supply for the regional grid operator, the Midcontinent Independent System Operator. Its filing says the 252 engines can generate up to 756 megawatts; only ELN-02's 60 engines had been installed and tested when it filed the request in April. The commission has not ruled.

Polaris Forge 2, in Harwood, is leased to Oracle. The annual report names only an investment-grade hyperscaler, but the indenture for the 6.750% notes that finance the campus names Oracle under two service orders dated Oct. 20, 2025: 150 megawatts in one building and 50 in a second. The lease is 200 megawatts, the annual report and the indenture show, and the indenture keeps anything above that out of the noteholders' collateral. The quarterly report says the two buildings have 300 megawatts of aggregate capacity, without defining the term, and no filing shows a tenant for the difference. Minnkota Power Cooperative, which will supply the site through Cass County Electric Cooperative, says peak load will be 280 megawatts; no filing with the commission gives a figure. Minnkota's September construction report in case PU-26-22 shows that testing at its new substation south of Harwood had barely begun: 10% commissioned, against a December target, with structures 95% set.

At Center, Montana-Dakota's contract allows up to 430 megawatts for 300 megawatts of leased load, but it awaits approval. Roughrider Electric Cooperative has protested, saying the site lies in its territory, and no hearing is set. The $110m of grid upgrades is charged to Applied Digital, and part arrives only in 2029, Montana-Dakota testified. Separately, on Oct. 4 Applied Digital agreed to buy power for 15 years from a planned 1,200-megawatt gas plant at Center being developed by Base Electron, in which Applied Digital and some of its officers and directors hold stakes. The quarterly report calls the plant dedicated generation for Polaris Forge 3; the annual report calls it front-of-the-meter supply. No filing explains how it fits beside the utility contract.

Polaris Forge 3 and two southern campuses, Delta Forge 1 in Louisiana and Delta Forge 2, are leased to a tenant the company describes only as a high investment-grade hyperscaler: 810 megawatts, worth about $20.2bn, starting in 2027 and 2028. The leases are take-or-pay. A tenant leaving for convenience owes the remaining value, though it may terminate over long construction delays.

Who gets paid first

Each campus has its own lender. The 9.250% notes due December 2030, $2.35bn, were issued by APLD ComputeCo and are secured on ELN-02, ELN-03 and the CoreWeave leases behind them. The 6.750% notes due March 2031, $2.15bn, were issued by APLD ComputeCo 2 and are secured on Harwood and Oracle. The 7.000% notes due June 2031, $1.59bn, were issued in June by APLD ComputeCo 3 to build ELN-04. The annual report says TopCo 2 wholly owns ComputeCo and ComputeCo 2; ComputeCo 3 has the same direct parent as ComputeCo, so the 7.000% notes sit there too*. On recourse the filings say two things. Applied Digital's debt note says the parent guarantees only completion of the campuses, a promise to finish the buildings, and gives no other credit support. Its note on the companies it controls says TopCo 2 is bankruptcy-remote, with separate assets and liabilities, but that TopCo 2's creditors have recourse to the parent's assets and general credit. The filings do not reconcile the two. The parent last stood fully behind campus debt with a $300m bridge loan for ELN-04, which carried a full parent guarantee until the 7.000% notes repaid it on June 16, 2026.

The noteholders' real protection is the tenant. A missed rent payment is not itself a default on the notes. If a lease ends and is not replaced within six months by a qualifying tenant, the notes default under section 6.01(11) of each indenture; a signed letter of intent and a full debt-service reserve stretch that to 12 months. The 6.750% indenture lists Oracle, Microsoft, Amazon, Alphabet, Meta and Nvidia as qualifying tenants, plus any listed technology company worth at least $100bn. The two CoreWeave-backed indentures add CoreWeave itself and lower the bar to $50bn.

Macquarie comes next. Its dividend is due after the notes are served and before anything reaches Applied Digital. TopCo 2 paid $60.1m of it in units last quarter, the quarterly report shows, so the parent figures below assume units. The rate rises 0.875 points on Oct. 7, 2030, and again on Oct. 7, 2031, toward a cap of 16.75%, if the units have not been redeemed by then. On a liquidation Macquarie gets at least 1.8 times the money it put in. Applied Digital can buy the units back from April 2028. If they are still outstanding on Oct. 6, 2032, or after trigger events that the annual report does not list, Macquarie can require TopCo 2 to put itself up for sale.

Below both sits the parent. A $430m revolving credit facility led by Goldman Sachs, with $82.4m drawn and $241.0m used for letters of credit, is secured on assets outside the campuses. A $58.5m Texas Capital Bank loan requires a market value above $2.0bn, about $6.61* a share. The parent also owes $450m of convertible notes due June 2030. Total debt principal is $6.72bn, convertibles included, though the quarterly report's table labels it term loans.

Rackline measures coverage as cash against what is owed: filed minimum rent times the 89% rental margin Applied Digital reports as its own measure, divided by filed principal and interest. No lender tests these ratios. None of the three indentures has a coverage test, and the revolving facility's test leaves TopCo 2 out. On the three note issues, campus cover is 1.00 times* in the nine months to May 2027 and 2.06 times* in fiscal 2028. At the parent, after overhead and all debt, it is 0.83 times* and 1.87 times*, with Macquarie paid in units. Paid in cash at 12.75%, it would be 0.58 times* and 1.39 times*. Paying in kind keeps cash in the business but enlarges a claim that comes ahead of shareholders, and the step-ups raise the rate at which it compounds. The Ellendale cap does not bite until ELN-04 arrives in 2027: parent cover stays 0.83 times* this year and falls to 1.76 times* in fiscal 2028.

The bigger test is the maturity wall. Of the $6.72bn, $4.26bn, about 63%*, falls due in fiscal 2031, from June 2030 to May 2031, when the convertibles, the 9.250% notes and the 6.750% notes mature. Filed minimum rent that year is $2.37bn. The annual report is blunt about the plan: "It is likely that we will need to refinance at least a portion of our outstanding debt."

The CoreWeave link

Last quarter Applied Digital booked $79.1m of data-center rental and other revenue, $65.8m of it base rent; its quarterly report credits the AI business's profit to the first two Ellendale buildings, which are leased to CoreWeave, and to fit-out work. By contract value CoreWeave is about 30%* of the $36.2bn.

The credit behind CoreWeave's rent has shifted. On March 30 CoreWeave moved two of the four halls in ELN-02, and all of ELN-03, to a subsidiary, CoreWeave Compute Acquisition Co. VIII, an amended current report Applied Digital filed on April 1 shows. The same day that subsidiary took on CoreWeave's $8.5bn delayed-draw loan, which CoreWeave's quarterly report describes as secured on the subsidiary's assets. CoreWeave backs the moved leases with springing guaranties that take effect if the subsidiary or CoreWeave goes bankrupt, if the rating on the subsidiary's financing falls to a redacted level, or if the subsidiary's own computing contract ends or defaults. CoreWeave also owed a $50m letter of credit; no filing confirms delivery. In June Applied Digital agreed in principle to move the ELN-04 lease the same way if the subsidiary wins an investment-grade rating.

A CoreWeave stumble would arrive in stages. Missed rent calls on the guaranty and the letter of credit. A bankruptcy triggers the guaranty. A rejected or terminated lease starts the six-to-12-month re-letting clock. Applied Digital, for its part, guarantees its landlord subsidiaries' obligations to CoreWeave. Power is not a default under any of the three indentures. CoreWeave's leases, filed in June and September 2025, set each hall's rent by the power available to it. If the utility fails, the landlord runs its generators, and the filed text does not cut or end rent for that alone. CoreWeave can terminate if a fire or other casualty takes power below 90% of a hall's level and repairs run past 180 days, or after an uncured landlord default, which includes the landlord causing a loss of power. The schedule setting out remedies for outages was not filed.

The cloud unit and the price

The cloud business is out of the core but not gone. On May 5 Applied Digital put it into Ekso Bionics, a listed exoskeleton maker that became ChronoScale, and it still owns about 96%. No filing describes a sale of that stake. At ChronoScale's Oct. 16 close the stake is worth about $2.1bn*, though only about 4% of its shares are held outside Applied Digital*.

Applied Digital's enterprise value is about 0.32 times* its $35.7bn of filed minimum lease payments, or 0.26 times* with the ChronoScale stake at market. TeraWulf trades at about 0.35 times* the contracts it has announced, Cipher Digital at 0.54 times* the backlog it has stated, IREN at 0.95 times* its cloud contracts and Core Scientific at 1.14 times* its filed lease receipts. Applied Digital's multiple leaves out the unfiled cost of finishing three campuses.

Verdict

The notes are sound while the tenants pay: at the campus level, rent covers note payments about twice* in fiscal 2028, against 1.87 times* at the parent. The equity is a bet on everything below that line: that Applied Digital refinances $4.26bn in fiscal 2031, renews the Ellendale power contract, finances three more campuses and still has cash left after Macquarie. With about $41m* outside TopCo 2 today, the parent depends on new money until the rent reaches it. Wes Cummins, the chief executive, pitches scarcity: "Put simply, we view every new restriction elsewhere as making what we already own harder to replicate," he said in the company's results release on Oct. 7.

Watch one window. Ellendale's power contract ends on Aug. 31, 2030; Macquarie's rate steps up on Oct. 7, 2030, and again on Oct. 7, 2031; and $4.26bn falls due in fiscal 2031, which runs from June 2030 to May 2031. The power date is a renewal signpost, not a credit event: a lapsed utility contract does not cut rent, and only a lease ending starts the six-month re-letting clock. Before then, watch the commission's rulings on the diesel request and at Center, Harwood's first power, CoreWeave's $50m letter of credit and the first refinancing.

What is filed, what is stated, what we couldn't find

* Figures marked with an asterisk are Rackline estimates.

Method

Cash outside TopCo 2* is consolidated unrestricted cash of $2,949.9m less TopCo 2's $2,909.4m (10-Q, Aug. 31, 2026). Market value* uses the Oct. 16, 2026 Nasdaq close of $18.05 and 302.4m shares on the 10-Q cover. Enterprise value* adds $6,721.6m of debt principal, Macquarie's units ($2,010.9m) and Series E-1 preferred ($56.4m), less unrestricted cash. Total debt principal of $6,721.6m (10-Q p.19) is every borrowing, including the $450m of convertibles, although the table is labeled term loans.

Placement of the 7.000% notes*: APLD HPC Holdings 2 LLC is the direct parent of both ComputeCo and ComputeCo 3, and the 10-K says TopCo 2 wholly owns ComputeCo, so Holdings 2 and ComputeCo 3 sit inside TopCo 2 (10-K pp.43, 50, 97, 100). No single filing says so outright. TopCo 2's long-term debt of $5,918.6m (10-Q p.26) is consistent with all three note issues less issuance costs*. APLD Holdings 2 LLC, without HPC, is a different company that sits above TopCo 2.

Coverage* uses filed minimum lease payments (10-Q p.32) times the 89% rental margin (89.4%* unrounded: $58.8m on $65.8m of base rent), net operating income over base rent, which Applied Digital files as its own non-standard measure (10-Q p.46; reconciliation pp.50-51). The denominator is filed principal and interest (10-Q pp.19, 53). Campus level covers the three note issues only. Parent level subtracts business-unit and recurring head-office cash overhead and covers all debt and Series E-1 dividends, with Macquarie paid in kind; the cash case at 12.75% is a sensitivity. Fiscal 2027 covers the nine months to May 2027. With rent down a fifth and costs fixed, campus cover across all debt is 0.75 times* and 1.54 times*. Coverage is Rackline's measure; no indenture has a coverage test, and the revolving facility's test excludes TopCo 2.

The 350-megawatt case* scales estimated Ellendale rent ($11.0bn over 15 years for 400 megawatts) by 350/400 from ELN-04's delivery, modeled from fiscal 2028; with 250 megawatts live, the cap does not bind in fiscal 2027.

Peer multiples* divide each company's enterprise value at Oct. 16 closes by contracted revenue from its latest filing, release or presentation; TeraWulf excludes Core42, Core Scientific excludes leases not yet started, and IREN uses cloud contracts rather than leases. Galaxy is not computed: its data centers are a small part of a trading and lending group.

Earlier basis: Rackline's Oct. 16 credit piece used megawatts on line times one lease price at a 72.9% margin, which gave campus cover of 0.84 times* and 1.56 times*, or 0.71 times* and 1.31 times* after segment overhead. That basis is superseded. On today's basis, cover for the rest of fiscal 2027 across all debt is 0.90 times* after segment overhead and 0.84 times* after segment and head-office overhead; that 0.84 times* is a new figure, not the old headline.