A lot of comments praising this summary, but I'll criticize it: it's still too verbose, and misses the point.

Meta wants to fund this project, but doesn't want the debt on own its books (because it would impact its vanity AA credit rating). Debt investors are happy to finance a special purpose vehicle guaranteed (in a non debt way) by Meta at a credit rating almost as good as Meta's (say, A). No one is confused this is Meta getting financing for their own project; they've just put it in a wrapper for vanity credit score reasons.

Levine wrote about it and his writing is better than ChatGPT, this snarky website, and obviously mine: https://www.bloomberg.com/opinion/newsletters/2025-10-29/put... .

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illwrks 4 hours ago | parent | next [-]

So… ‘vanity’ ratings… what’s the point of them then.

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rsync 4 hours ago | parent | next [-]

I think "vanity" is the wrong term because their existing credit rating, which they attempt to preserve, impacts all other borrowing (and possibly other agreements and finance vehicles, etc.) that they undertake.

So it's probably valuable to retain that credit rating.

The real issue here is how simple it is to game the rating agency in this way and how the market allows Meta to "launder" this activity through the ratings agency.

This is, in fact, a fairly close analogue to the housing crisis and the ratings laundering that was done with the CDOs[1]. The difference is, instead of drilling down to thousands of mortgages - each with different characteristics - you really just drill down to Meta ... which might not be too risky ...

[1] https://en.wikipedia.org/wiki/Collateralized_debt_obligation

	▲	illwrks 4 hours ago \| parent [-]
		Agreed. I know very little about financing but I’d bet if their rating fell that would trigger some debt repayment clause and the house of financial cards might wobble or fall. …someone needs to shake the tree and see what falls out, like Peter Thiel did for SVB.

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Aurornis 3 hours ago | parent | prev [-]

There are a lot of places where the credit ratings are hardcoded (to borrow a term) into funds. There are pension funds and other vehicles that might be bound to only invest in AA rated companies.

So if a company drops their AA rating it could force them out of a lot of funds and investment vehicles.

This complicated vehicle where the debt and assets are in another LLC isn’t actually tricking anyone in finance. If you’re reading about it from blogs then it’s already common knowledge. The structure isn’t actually a one way trick, it’s a set of tradeoffs and protections for the company. They probably could have achieved better terms going direct but with higher risk.

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everybodyknows 17 minutes ago | parent | next [-]

> isn’t actually tricking anyone in finance.

Surely the ratings agency people are "in finance"? Or are they in on the game, and sliding their way back to 2008, writing ratings for "deals structured by cows"?

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illwrks 3 hours ago | parent | prev [-]

Instinctively I try and simplify things. It this was a person with an excellent credit score, it’s as if the person is taking on extra debt to start to create something they need, but trying to hide it.

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Aurornis an hour ago | parent [-]

But that simplification isn’t the whole story. If that person took on debt as part of an LLC they started, not their personal bank account, then they have certain protections in the event of default of the LLC.

They will also have to pay a premium and give up more for debt to the LLC because the lenders know this.

The same is true for Meta.

The finance world isn’t blind. None of us hear are stumbling upon hidden knowledge that the lenders didn’t already have.

	▲	illwrks 6 minutes ago \| parent [-]
		Ah ok, now that makes sense. Thank you.

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bregma 4 hours ago | parent | prev [-]

Still too verbose. Here's a TL;DR.

Meta is borrowing a whole lot of money and they're lying about it to investors.

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loeg 4 hours ago | parent [-]

No one is lying or deceived here.

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toomuchtodo 4 hours ago | parent | next [-]

Ehh, tell me the credit ratings assigned by rating agencies to mortgage backed securities circa 2005-2007. Its an ecosystem with misaligned incentives, and some cohort of investor will be left holding the bag. Big Tech, investment banks, and ratings agencies will get off with no consequences when this Jenga-esq capital apparatus eventually collapses.

	▲	robocat 4 hours ago \| parent \| next [-]
		A nice article on the underlying systemic causes of the crash: https://archive.ph/2015.11.08-145615/http://www.wired.com/20...
	▲	SpicyLemonZest 4 hours ago \| parent \| prev [-]
		I don't see what's Jenga-esque about this capital structure. You've got some AA- bonds issued directly by Meta having to do with their core business, and some A+ bonds issued by different entities to fund their riskier and more speculative datacenter construction. If anything, wouldn't it be harder to track the risk if both these bonds were stuffed into the same bucket?

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bregma 3 hours ago | parent | prev | next [-]

Investor: Is this your debt, Meta?

Meta: (hiding debt behind its back) No. It's Jimmy's.

Investor: Now Meta, you know lying is wrong.

Meta: No it's not. All the kids do it so it's OK.

	▲	cyanydeez 2 hours ago \| parent [-]
		If it's related to AI, it's more like wash trading. The entire business interest in AI is making things look like there's a lot of investment when it's really just a small circle jerk of business interests. It's just a more advanced crypto fraud.

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emp17344 4 hours ago | parent | prev [-]

It’s not necessarily lying, but it’s certainly deceptive.

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ejoso 4 hours ago | parent [-]

Not even deceptive. This is relatively normal business practice.

It’s easier to think of this as “project risk” as opposed to corporate risk overall.

This isn’t different than creating a subsidiary to embark on a new program, with its own debts and assets, collateralized by a parent company.

It’s effectively the same as what happens every time a major movie studio starts a new film project.

	▲	svnt 2 hours ago \| parent [-]
		Usually subsidiaries’ debt is not also debt on the parent company, especially when said parent is publicly traded and subject to accounting/disclosure rules.