Fermi Terminates $6.5B Anchor Deal, $200M AI Commitment Fails to Offset Covenant Risk

What happened

Fermi announced the termination of a previously undisclosed $6.5 billion anchor-tenant deal, which the market had likely viewed as the key to satisfying the Dec 31, 2026 'Approved Customer Agreement' covenant in its 12.90% equipment debt. The company simultaneously disclosed a new $200 million AI-related commitment, which is small relative to the lost deal (about 3% of the $6.5B) and may not meet lender thresholds for an 'Approved Customer Agreement'. The master report had identified the absence of a binding, credit-underwritten tenant contract as the primary risk, with a base case assuming no such agreement by mid-2026, but the new information suggests even a potential large deal failed to materialize. With the $20M minimum liquidity covenant still in place and the Dec 31, 2026 mandatory prepayment trigger looming, the termination increases the probability of dilution or distressed financing. The company's stock has already fallen from $32.53 at IPO to $7.87 in March 2026, and further negative revisions are likely as the market processes the loss of the larger deal and the inadequacy of the replacement.

Implication

The termination of a $6.5 billion contract, which likely represented the cornerstone of Fermi's financing plan, materially increases the risk of covenant breach and mandatory prepayment by year-end 2026. The new $200 million AI deal, while a positive signal on demand, is not at a scale that will satisfy the 'Approved Customer Agreement' definition embedded in the company's equipment debt. With only $20 million in minimum liquidity required and no earnings-based valuation floor, the company may be forced into equity dilution or distressed asset sales before the December deadline. The master report's base case already implied a value of $7.75, but that assumed no approved customer agreement was disclosed; the failure of a $6.5B deal suggests the bear case ($4.50) becomes more likely. Investors should reduce exposure and watch for any filing that demonstrates a binding, credit-underwritten contract that meets lender criteria, as that would be the only catalyst to restore confidence.

Thesis delta

The new information invalidates the base case assumption that no approved agreement would be disclosed but that financing and permitting progress would continue; instead, it shows that even a large potential agreement failed to close, increasing the probability that the company will breach its Dec 2026 covenant and face mandatory prepayment. The $200 million replacement is too small to de-risk the capital structure, so the thesis shifts from 'POTENTIAL SELL' to 'SELL' with a lower fair value closer to the bear case of $4.50 or below. Confidence in the bearish outlook increases, but we should monitor for any unexpected filing of a lender-qualifying contract.