A condition written into a loan, a bond or another contract. Chapter 10.
From The AI Compute Race. Read the book
Where the book uses it
- Chapter 10 — The Lender’s Decision
Who is lending the money and who bears the loss: the bonds, leases and guarantees behind the largest campuses, and how the paper reaches ordinary retirement accounts.
Sources that use it
- SpaceX, Form 10-Q for the quarter ended 30 June 2026, filed 4 August 2026 (description of the NAACP suit; turbines characterized as “mobile gas turbines” operated with MDEQ’s permission; IPO: 638.9 million Class A shares sold at $135.00 including the full exercise of the underwriters’ over-allotment option, net proceeds $85,675 million; Valor-related failed-sale-leaseback obligations at 30 June 2026: $2.039 billion current and $11.290 billion non-current, $13.3 billion together; $327 million of interest in the quarter and $513 million in the half; the filing also marks the five June notes at $24.697 billion fair value against $25.0 billion principal at 30 June 2026 — an aggregate price of 98.8, four days after settlement; SpaceX Notes $25bn, five tranches 2031–2056 at 5.35–6.65 percent, WAM 11.7 years, effective 6.03 percent, the lien basket 7.5 percent of consolidated total assets; the xAI 12.5% Senior Secured Notes, extinguished with a prepayment penalty of $518 million, had prepayment penalties of 106.25% on the principal outstanding prior to 15 July 2027 and 103.13% prior to 15 July 2028; Other financings $13,406 million at 30 June 2026, the line that holds the failed sale-leasebacks; Note 9, Other Financings, gives its “various other financing arrangements, generally collateralized by specific machinery and equipment” as carrying “an average fixed interest rate of 5.9 % and 5.5 % per annum as of June 30, 2026 and December 31, 2025”, and describes the three failed sale-leaseback transactions after them with no stated rate, so the 5.9 is the smaller equipment financings’ and not the Valor leases’, whose booked interest of $327 million in the quarter implies more, read in the held EDGAR copy on 25 September 2026; nameplate compute draw 1.4 GW vs 0.4; capex reallocation language (“if our near-term data center needs decrease in scale or ramp more slowly than expected, including due to global economic, tax, trade or business conditions, we may reduce future capital expenditures in this segment and reallocate those expenditures to other segments based on business priorities and growth opportunities”); Cloud Services Arrangements note; AI infrastructure revenue +$1,600m “as we began to offer cloud services to customers”; Customer B (AI segment) 19.5% of Q2 consolidated revenue; the 90-days’-notice termination risk factor; the metric’s own definition: “We calculate nameplate compute draw for a period as the number of GPUs installed in our data centers at the end of the period multiplied by their respective all-in power draw. Nameplate compute draw reflects installed capacity and does not represent actual power consumption or utilization. It does not include power we install and use for our supporting infrastructure such as cooling systems, power distribution losses, lighting, security systems, or facility-level overhead” — chip-level installed draw, not site load; the notes’ effective rate “6.030%” is stated “as of June 30, 2026”, twice; the $354 million litigation accrual is as of 30 June for losses “probable and reasonably estimable”; AI infrastructure revenue up $1,600 million for the three months ended 30 June 2026 against the same quarter of 2025 (and the same on six months); Customer B, an AI-segment customer, 19.5 percent of consolidated revenue for the quarter and 12.2 percent for the six months; Note 18 — Segments, three months ended 30 June 2026: AI segment revenue $2,561 million and loss from operations of $(1,257) million; the risk factor’s own words on the tenancies: “after an initial period inclusive of capacity ramp … may be terminated by either party upon 90 days’ notice”; Key business metrics, p. 35: “Falcon launches” 37 and 77 for the three and six months ended 30 June 2026, “of which, customer launches” 10 and 17 and “of which, internal launches” 27 and 60, against 45, 9 and 36 and 81, 21 and 60 a year earlier, with “Starship launches” 1 and 1, the footnote repeating the S-1’s definition of a customer launch and “To date, all Starship launches have been classified as internal”; the earnings release of the same day (8-K, Exhibit 99.1, p. 4) counts Starship in its “Total launches” of 78 for the half, so its internal 61 is not the Falcon figure; the Cursor option: “In June 2026, the Company exercised the call option and entered into an Agreement and Plan of Merger” with Cursor, the company then expecting the merger “to close during the third quarter of 2026”; on the NAACP suit: “the mobile gas turbines powering the COLOSSUS II data center with the permission of the Mississippi Department of Environmental Quality” (Note 16, Commitments and Contingencies, Legal Proceedings, p. 29); the risk factor on the AI customers names “shifts to internally developed infrastructure, migration to competing platforms” (Part II, Item 1A, Risk Factors, p. 51); Note 9 on the other two repayments of March 2026, unquoted: X’s B-3 term loan, $5,966 million, prepayable at 107.13 percent before 27 October 2026, repaid on 2 March 2026 with a penalty of $425 million for it and the B-1 loan, which the filing says carried none; xAI’s two term loans of $1,000 million each, prepayable at 103 percent before 30 June 2027, repaid the same day with a penalty of $221 million; the filing explains neither difference and lists no credit agreement or indenture of X.AI among its exhibits; the segment table’s capital expenditures for the three months to 30 June 2026, AI $15,828 million of $18,369 million in total, and for the six months, AI $23,551 million of $28,476 million; Covenants: “The SpaceX Notes contain customary events of default and affirmative and negative covenants, including restrictions on additional liens”; total assets of $192,770 million on the balance sheet at 30 June 2026, 7.5 percent of which is about $14.5 billion by this book’s arithmetic; the IPO’s “net proceeds of $85,675 million after deducting the underwriting commissions and offering costs of $575 million”, $86,250 million gross by this book’s addition; “The United States has moved to intervene to dismiss the action, and the State of Mississippi has filed an amicus brief opposing the NAACP’s preliminary injunction motion.”; the report names neither Darana Hybrid nor any retirement schedule for the mobile turbines). In the Sources
- Lowell Charter Township, Michigan, “Business Park” page, Microsoft’s proposed data center at Covenant Business Park, as served 28 October 2026 (“Lowell Township Supervisor Jerry Hale signed a non-disclosure agreement (NDA) with Microsoft in January 2025. NDAs are commonly used so companies can explore potential locations without competitors learning about their plans”; “Microsoft publicly revealed itself in January 2026 — although, it has not purchased the property. That same month, Microsoft ended its NDA with Lowell Township”; the board “voted 5-2 against the moratorium” on 18 May 2026, and “The Board’s decision does not mean the proposed project has been approved”). In the Sources
Related terms
From the glossary of The AI Compute Race.
How to cite this page
Dryburgh, Lee S. “Covenant.” In The AI Compute Race. DRYBURGH. https://dryburgh.com/vol1/glossary/covenant (accessed 2026-11-01).
BibTeX
@misc{dryburgh-covenant-2026,
author = {Dryburgh, Lee S.},
title = {{Covenant}},
howpublished = {In \emph{The AI Compute Race}, DRYBURGH},
year = {2026},
url = {https://dryburgh.com/vol1/glossary/covenant},
note = {Accessed 2026-11-01}
}