Interestingly, it looks like there is a move away from financing these data centers with tech company cash-on-hand and moving to Special Purpose Vehicles over the past 18 months or so. So now there is a lot more debt involved in funding DC's than equity, in ways that are a sudden change to what was largely a funded-by-equity process at the beginning of 2024.

The one I found best documented (1) is a Meta's SPV to fund their Hyperion DC in Louisiana, which is a deal that is 80% financed by private credit firm Blue Owl. There is a lot of financial trickery to getting the SPV to be counted by the ratings agencies as debt belonging to a different entity that does not count against Meta's books but treated by the market as basically something that Meta will back. But xAI's Memphis DC is also a SPV, and Microsoft is doing that as well. I'm not sure about AMZN, but that we're starting to see that from their competitors suggests they will also be going to this way.

1: By the invaluable Matt Levine, here: https://www.bloomberg.com/opinion/newsletters/2025-10-29/put... but the other major companies have their own SPV's

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brendoelfrendo 3 days ago | parent [-]

I saw this, and honestly, it's kind of silly. We all know what's going on, so why do the credit ratings agencies play dumb to this kind of financial engineering? Why don't they just say "actually no, we all know that's debt and it's owned by Meta so we will consider it when rating their credit."?

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lesuorac 3 days ago | parent | next [-]

IIUC, they ignore it because they're supposed to.

If the market collapses I think Meta can technically just walk away and they lose access to those data centers (which they no longer want anyways) and the SPV is stuck holding $X of assets with $>X liabilities and the issues of the credit are on the hook but not Meta.

And investors are fine being on the hook because they get a higher return from the SPV bonds than Meta bonds. (risk adjusted it's probably the same return).

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JumpCrisscross 3 days ago | parent | prev | next [-]

> We all know what's going on

Do we?

The payments Meta et al are making to the SPV are payments for data-center services. The data centers are then buying the assets and issuing the debt. Now, Meta is obligated to make those payments to the SPV. Which looks like debt. But they are only obligated to do so if the services are being provided.

Blue Owl, meanwhile, owns 80% of the datacentre venture. If the price of chips crashes, that's Blue Owl's problem. Not Meta's. If Meta terminates their contract, same deal. (If Beijing nukes Taiwan and the chips quintuple in value, that's Blue Owl's gain. Mostly. Not Meta's.)

> Why don't they just say "actually no, we all know that's debt and it's owned by Meta so we will consider it when rating their credit."?

If Meta stopped paying the SPV, the SPV would have the recourse of a vendor. If Meta stopped making payments on its bonds, that would trigger cross defaults, et cetera. Simply put, Meta has more optionality with this structure than it would if it issued its own debt.

The red flag to keep an eye out for are cross guarantees, i.e. Meta, directly or indirectly, guaranteeing the SPV's debt.

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cmiles8 3 days ago | parent | prev | next [-]

Because, to quote from The Big Short, “if we don’t give them the rating they want they’ll just walk down the street and go to [the other ratings agency].”

Does that make any sense? No.

	▲	nickff 3 days ago \| parent [-]
		In the case of “The Big Short” it did make sense, because the ratings were required by the government, not the purchasers (who often/usually disregarded the ratings for the purpose of valuation), and the sellers paid for the ratings.

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rchaud 3 days ago | parent | prev | next [-]

Because in credit ratings game, the customer is paying to get their bonds rated. Therefore the customer is always right.

	▲	JumpCrisscross 3 days ago \| parent [-]
		> the customer is paying to get their bonds rated. Therefore the customer is always right Then Meta would do this in a wholly-controlled off balance sheet vehicle à la Enron. The fact that they're involving side cars signals some respect for their rating.

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eiifndjj18484 3 days ago | parent | prev [-]

the point is to get pension money into the market, whilst ringfencing the risk in an SPV so that when/if it pops, it’s none of the people who do actually know what’s happening that will be affected. And they’ll potentially be shorting it on the way down as well