Are they really "trying to hide" this debt? I think it's pretty common knowledge that a lot of these companies are using debt/bonds for funding. The debt not showing up where the author wants is a reporting formality not an attempt to hide it.

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drob518 4 hours ago | parent | next [-]

I think the point is that it’s not showing up on the standard financial filings. If you were to pull the annual reports for these companies, you wouldn’t see it. That doesn’t mean it’s impossible to find it. Obviously, it is otherwise the article wouldn’t have been written. But you’re going to have to go the extra mile. To be clear, none of this is illegal. It’s just covered in the advanced CFO accounting class.

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Anon1096 4 hours ago | parent | next [-]

It's not hidden at all. Financial blogs very accessible to laymen like Matt Levine's Money Stuff have talked about this structure months ago. If you are an investor and surprised by this news you weren't sufficiently prepared and shouldn't have been investing in the first place.

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aftbit 4 hours ago | parent [-]

What's the purpose of keeping it off the balance sheet if not to hide it?

	▲	drob518 an hour ago \| parent [-]
		A legitimate reason to do this is so that you can sell it all off or restructure it later without it being intertwined with your main books. So, for instance, it you’re an AI company, your main business is developing models and selling inference, but you need data centers to do that. You could buy those data centers yourself, or you could create a data center subsidiary that would take on debt and build your data centers and then rent them back to you. In the future, if you decide you don’t need that capability any longer, you just sell the subsidiary and you don’t have to tease apart the P&L and personnel to do it. It’s clean and separate because it was structured that way up front. Now, that’s not to say that there aren’t other benefits of having a separate balance sheet related to moving numbers around. But it doesn’t have to be nefarious.

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dmitriy_ko 4 hours ago | parent | prev [-]

Take-or-pay contracts appear as "contractual commitments" in 10-K. They are not hidden. That's the way they are reported in all industries where take-or-pay contracts exist. There's nothing nefarious about it.

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drob518 an hour ago | parent [-]

Yes, the contractual obligation shows up, but not the debt the subsidiaries took on. You have to follow the entity structure and look at their books for that piece. And it’ll show up as a different accounting category, “services rendered,” for instance, not as debt repayments.

	▲	dmitriy_ko an hour ago \| parent [-]
		If it's fully-owned subsidiary then debt would appear on parent-company balance sheet. It doesn't show up if it's an independent company, e.g. CoreWeave.

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skohan 4 hours ago | parent | prev | next [-]

If it didn't matter, why would they bother jumping through hoops to keep the debt off their balance sheet?

In the run-up to 2008 a big factor in the bubble forming was that poor quality loans were packaged in a way to hide the risk in those investments. I'm not expert enough in finance to know if it's the case now, but we do know that clever accounting to hide debt can lead to the incorrect valuation of assets, potentially leading to financial ruin.

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rmah 4 hours ago | parent [-]

They're not jumping through any hoops, I think they're simply complying with reporting requirements. It's not on their balance sheet because being recorded as strait debt would itself be misleading. My understanding is that these sort of off-balance sheet "debt" is mostly in the form of deal terms that may or may not be expressed at some point in the future.

An analogy that comes to mind is when companies used to book future sales in the present. They got in trouble for this and is now forbidden. I recall reading that one deal had terms that transferred assets if certain conditions were not met. If terms-based debt should be booked now, then terms-based assets should as well. This stuff makes my head hurt.

Either way, as long as it's not hidden (and it's not for the public companies), then it's fine.

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palmotea 4 hours ago | parent | prev | next [-]

> The debt not showing up where the author wants is a reporting formality not an attempt to hide it.

Couldn't you characterize Enron that way? The liabilities are there, you "just" have to look at Raptor II or whatever!

	▲	fzeroracer 3 hours ago \| parent \| next [-]
		You couldn't just characterize them that way, they are using literally the exact same setup that Enron did in order to hide the massive amount of debt and liabilities they had that eventually sunk the company. People jumping in to defend this as being totally legit or not-fraud seem quite insane to me: companies should not be trying to hide these things to pump up their stock prices or to entice investors that otherwise might not see it.
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Xalutiono 4 hours ago | parent | prev | next [-]

Yeah I think it went through the press on mass eh?

And even if you look at the debt, even companies like meta make 200 billion revenue in 2025 alone.

Isn't it good that these companies with these massive massive deep pockets invest?

	▲	dofm 3 hours ago \| parent [-]
		One of Meta's SPVs building a data centre for them, Meta own only 20% of it; 80% is owned by other investors. That's the issue here; the market thinks that only these handful of money-go-round FAANGs/Mag7 companies, are exposed but analysis shows that SPVs are spreading really significant risk to many more investors.

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jerf 3 hours ago | parent | prev [-]

It's an interesting counter to the efficient market hypothesis. "Everybody" knows about this debt. It's in the most public news outlets there are, and the word has been getting around. It's about as secret as Taylor Swift's concert schedules. Any serious investor knows about this debt.

And yet... the companies do this because it works. If they held this debt on balance sheet, the sensible assumption is that their stock values would take a rather substantial hit, and they could face other sorts of scrutiny. It works like pull-in sales works. It works like channel stuffing works. It works even when everybody knows that's what's happening. It works even when everybody knows that everybody knows that's what's happening.

There's something broken here. In an era where AIs move millions upon millions of dollars around because of some blip of a headline somewhere and every AI improvement of any kind is immediately scrutinized for its ability to be used by the financial system, it is completely incredible that the system doesn't know and react to these things. I'm not sure what's broken. My first best guess would be the increasingly mindless investment via index funds in pensions and the slow-but-ever-increasing ability of financial engineering to abuse that mindless investment, but I call that a "guess" for a reason. Possibly there's still a lot of really stupid AIs hooked up to the stock market that just look at the most basic of numbers and are easily fooled by this? But who is running such a precise combination of "huge" and "stupid" on the market? I dunno. Something's weird here.