In recent months, tech tycoon Mark Zuckerberg has always sent pictures to showcase Meta’s AI vision, showcasing the Hyperion super data center that the company is currently building, which covers an area comparable to Manhattan in New York.
The latest news shows that this super large data center also gathers the “top intelligence” of American financial and legal elites – the 6th largest listed company in the world by market value, which can ensure that its balance sheet is not immediately affected while completing a $27.3 billion financing. At the same time, this operation is said to have received approval from US financial regulators and bond rating agencies.
Creative Big Deal in the AI Era
Earlier this month, institutional investors snapped up $27.3 billion in bonds for the construction of Hyperion data centers. According to informed sources, bond giant Pimco purchased approximately $18 billion, while the world’s largest asset management company BlackRock also bought “billions of dollars”, with the majority of the remaining bonds flowing into insurance managed funds.
It is very interesting that the bond issuing entity is not Meta, but a shell company called Beignet Investor, which is 80% owned by investment company Blue Owl with a capital of $2.5 billion.
This is the massive data center financing plan that Morgan Stanley and renowned law firm Latham&Watkins spent nearly a year building for Meta.
To describe it in minimalist language, Meta places the Hyperion project within the Special Purpose Vehicle (SPV) Beignet Investor and conducts financing. Due to Blue Owl holding nearly 80% equity in the SPV and controlling the board of directors, the $27.3 billion liability will not be included in Meta’s balance sheet. Meta has further reduced its financial impact by breaking down computing power leasing contracts into cycles of every 4 years, so that rating agencies do not consider these leases as long-term debt.
According to sources familiar with the process, the purpose of this move is to limit long-term debt, which is a key indicator of a company’s financial health. According to informed sources, Meta has received a response from the US SEC, effectively approving this accounting treatment method for AI data centers. Meta also contacted rating agencies Moody’s and Standard&Poor’s to ensure that the transaction would not affect the company’s attractive investment rating.
Both institutions also stated last week that the transaction should not have any immediate impact on Meta’s credit rating, but the transaction itself still carries risks.
After this reversal, Meta is able to develop a super large scale data center without bearing any paper debt, and it is said that the Hyperion project will reach an astonishing 5 gigawatts after completion. This also means that the company can use more funds in the AI “money burning war”.
Meta has already significantly increased its capital expenditure on data centers, which could reach $72 billion this year and $100 billion next year. The company had been paying this money in cash before, but now it is turning to external investors.
The head of technology research at investment bank D.A. Davidson succinctly summarized, “As long as the capital market is willing to do this, why not
Long term cost
This operation naturally comes at a cost: the coupon rate of the bonds used for Hyperion data centers is close to 6.6%, which is 1 percentage point higher than Meta corporate bonds. At the moment when the interest margin of US bonds is extremely narrow, this yield is already equivalent to the level of junk bonds.
Given that S&P has rated this bond as A+, stable at investment grade, this yield is clearly attractive to institutions that can only hold investment grade bonds, such as insurance funds. Since its issuance last week, the bond has risen by nearly 6%.
This bond will mature in 2049. For the potential risk of “AI explosion”, the issuance agreement also includes a “fallback” clause for bond investors – if Meta decides to abandon the park before 2049, the company promises to pay investors a sum of money called residual value protection. Obviously, this unknown payment will not be immediately included in Meta’s debt level.
S&P Managing Director Naveen Sarma commented, “Ultimately, in order to be able to withdraw flexibly, they are willing to pay a higher price for it
Insiders also revealed that Meta seems to have found a way to circumvent accounting standards, which typically treat long-term leases as liabilities. It is reported that Meta has not signed a 20-year data center lease, but has signed a series of renewable 4-year leases with “11 independent buildings”. In this way, the company can consider these leases as operating leases rather than financing leases that must be reported as long-term liabilities.
In summary, although the SPV structure is not a new invention, Meta is the first tech giant to use this financial structure to finance its own AI data centers. NVIDIA, Microsoft, and Google also have off balance sheet operations, but only to support emerging cloud services and data center companies, with the latter providing financing.
Meta’s operations have also attracted attention from the banking industry. As traditional bond investors readily accept unconventional structures for financing super large data centers, more and more similar transactions are also on the way. It is reported that the world’s richest man Musk’s xAI is also using similar arrangements to provide funding for chips used in the Colossus 2 data center.
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