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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
by loeg 11mo ago
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-the-data-center-in-the-box https://www.bloomberg.com/opinion/newsletters/2025-10-29/put... .
- illwrks 11mo agoSo… ‘vanity’ ratings… what’s the point of them then.
- rsync 11mo agoI 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 https://en.wikipedia.org/wiki/Collateralized_debt_obligation
- illwrks 11mo agoAgreed. 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.
- Aurornis 11mo agoThere 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.
- illwrks 11mo agoInstinctively 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.
- Aurornis 11mo agoBut 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 11mo agoAh ok, now that makes sense. Thank you.
- everybodyknows 11mo ago> 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"?
- bregma 11mo agoStill too verbose. Here's a TL;DR. Meta is borrowing a whole lot of money and they're lying about it to investors.
- loeg 11mo agoNo one is lying or deceived here.
- toomuchtodo 11mo agoEhh, 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.
- SpicyLemonZest 11mo agoI 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?
- robocat 11mo agoA nice article on the underlying systemic causes of the crash: https://archive.ph/2015.11.08-145615/http://www.wired.com/2009/02/wp-quant/ https://archive.ph/2015.11.08-145615/http://www.wired.com/20...
- lazide 11mo agoExcept for a few instances, there wasn’t any lying or outright fraud in that situation, just like there probably isn’t here either. Just desperate, stupid, or naive lenders trying to get solid returns (and convincing themselves there are no major risk). Just like ‘08, frankly. Have enough lawyers, and you can make almost anything legal and aboveboard, no matter how sketchy it actually is. Buyer beware!