[HN Gopher] J.P. Morgan's OpenAI loan is strange
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J.P. Morgan's OpenAI loan is strange
Author : vrnvu
Score : 172 points
Date : 2025-10-20 19:38 UTC (3 hours ago)
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| themafia wrote:
| > Luckily for us, banks exist!
|
| Exactly. If they completely fail and threaten to take the economy
| with them then they can just say "Luckily for us, taxpayers
| exist!"
| flanked-evergl wrote:
| All the money lent to banks via TARP during the 2008 crisis was
| paid back with interest.
| themafia wrote:
| TARP was a collection of programs and not a general loan
| facility.
| drivebyhooting wrote:
| Paid back with interest but also inflation.
| thevillagechief wrote:
| The government(and taxpayers I assume) actually made out
| pretty well on the bailout loans. Considering the government
| still owns 99% of Fannie Mae and Freddie Mac, after retaining
| billions in profits over the last decade and a half.
| stackskipton wrote:
| Yes, US Treasury has gotten profit from Fannie/Freddie.
| However, there is concern from OMB that risk is not
| properly being calculated and thus in event of small
| housing crisis, US Government would have to back stop them
| again and possibly wipe out any profits gained.
| adventured wrote:
| The primary bailout during the 2008 housing crisis went to
| homeowners, not to banks through TARP. The secondary bailout
| was to banks, the Fed bought up trillions of dollars worth of
| garbage housing assets. That homeowner bailout was never paid
| back: it damaged the economy in the form of dollar debasement
| (ie lower purchasing power for everybody holding dollars).
| The Fed increased its balance sheet 400% in six years, and
| never looked back. The housing bailout was trillions of
| dollars, meant to keep that gigantic housing asset pool
| inflated artificially. We did it again during Covid, with
| another gigantic consumer bailout.
|
| See: gold at $400 vs gold at $4,000. Aka the destruction of
| the USD.
| JamesBarney wrote:
| Inflation was stable and pretty low for the 10 years after
| the financial crisis.
|
| Gold wasn't at $400 per oz before the financial crisis, and
| the spike in gold prices was fairly recent.
|
| Basically the financial crisis response didn't cause
| inflation, the covid response did.
| javaunsafe2019 wrote:
| Have you even read the article before posting?
| themafia wrote:
| Yes. Then I got to the point where it suggested, rather
| blithely, that the primary function of banks is to understand
| and absorb risk. I thought that deserved a reply. Did it
| bother you?
| greenfish6 wrote:
| The first example has a miscalculation; if you invest 1k and the
| EV is 900, then your choice has negative ROI, not positive.
| quirino wrote:
| The calculation that arrives at 900 has already subtracted the
| 1000 from the start.
| breischl wrote:
| He's calculating EV above cost. If you look at the calculation,
| the first term is -1000 to account for the initial investment.
| So the final value is tell you that you got back the initial
| money plus 900 more.
| neom wrote:
| However, the article is technically inconsistent in framing.
| postflopclarity wrote:
| it's correct. the EV is 900 after accounting for the 90%
| probability of -$1000. that's what the first term in the sum is
| for.
| riazrizvi wrote:
| This just reminds me of how flimsy cases are bolstered as soon as
| you put numbers and formulae in them.
| daft_pink wrote:
| I'm pretty sure the banks view the intellectual property value as
| the security for their loan not the potential profits of the
| company.
|
| I've worked for enough startups that even if your company folds
| and goes bankrupt with no business plan the ip generally can
| easily cover the outstanding loans.
| nradov wrote:
| That was one of the key parts of Silicon Valley Bank's business
| model. And that part worked pretty well: their collapse was
| caused by mismanaging interest rate risk and they never took
| many losses on loan defaults.
| nine_zeros wrote:
| Parts of SVB got picked up by JPM.
| SoftTalker wrote:
| I think that's got to be highly variable. I've worked for a
| couple of startups that went under and the IP had basically
| zero value. Who is going to pay for a failed implementation of
| a failed idea?
| JamesBarney wrote:
| I don't think OpenAI will be one of those companies. I can't
| imagine a world where OpenAI sells for less than 4b.
| ohdeardear wrote:
| Their web-application is worth $200,000. The software of
| the training infrastructure is worth perhaps $2M; the
| inference infrastructure is worth perhaps $500,000. Their
| hardware is worth nothing in 3 years. Their B2B relations
| are worth perhaps $5M. The "data" they have is worth
| nothing in 5 years, because a sufficiently smart model will
| be able to learn without human feedback.
|
| They have no moat. So, how do you get to $4B?
|
| I think the models are wrong way too often for relatively
| simple queries, so unless they give a secret prompt like
| "be wrong a lot in the free version" to users, it's
| basically worthless.
| umanwizard wrote:
| > The "data" they have is worth nothing in 5 years,
| because a sufficiently smart model will be able to learn
| without human feedback.
|
| This is a huge assumption.
| JamesBarney wrote:
| Where are you getting these numbers? And how would you
| appraise the value of the windsurf IP which sold for
| 2.4b?
| handfuloflight wrote:
| He's probably estimating the cost to produce these, after
| the fact.
| handfuloflight wrote:
| Too bad that's not how much they spent on that all of
| that, though.
| nickff wrote:
| Well, the question isn't what OpenAI's intellectual
| property is worth right now, or what you expect it to be
| worth, but what it is likely to be worth after OpenAI has
| become insolvent (and few/none of the current employees are
| working on it). The most likely causes for it becoming
| insolvent are probably that another company out-innovates
| them, or that the revenues never come in (despite OpenAI
| being a market leader). In either case, OpenAI's IP is
| unlikely to be sufficiently superior to the competition's
| to warrant a large premium.
|
| I am not sure how differentiated OpenAI's IP is, so I don't
| have a strong opinion, but it seems to me that OpenAI is
| worth a lot more as a package than it would be as a
| collection of pieces.
| schmidtleonard wrote:
| Who buys the IP?
| JamesBarney wrote:
| Like he said Microsoft is the most likely person to want to
| acquire the IP and employees. Amazon could be a potential
| second. Google paid 2.4b to license Windsurfs technology,
| OpenAI would go for far more.
| singron wrote:
| Microsoft already has rights to the IP. If OpenAI goes
| bankrupt, they can hire the employees without buying the
| company (similar to their offer in 2023 when the board
| tried to fire Sam Altman). Although if OpenAI goes
| completely bust, that probably means interest in AI across
| the industry has tanked, so an acquihire makes little sense
| over just hiring available talent on the market.
| candiddevmike wrote:
| It must be nice to put IP up as collateral for a loan. I know
| myself and a few other founders have tried and basically been
| told to go pound sand.
| KaiserPro wrote:
| > I'm pretty sure the banks view the intellectual property
| value as the security for their loan not the potential profits
|
| Naa that takes too long to get any value from. If openAI goes
| pop, their IP isn't going to be worth much, because it'll die
| from competition, or the economy going to shit.
| CamperBob2 wrote:
| Depends if they end up in a position to shake down the rest
| of the industry, as Google can with the Transformer
| patent(s).
| neom wrote:
| Interesting that they seem to misunderstand the difference
| between Equity Risk and Debt Risk, they also misapplied bond
| spreads.
|
| Anyway, J.P. Morgan's OpenAI loan isn't strange, it's calculated
| exposure to Microsoft.
| sberens wrote:
| > This Reuters article claims OpenAI is going to generate $3.6
| billion in revenue this year, but the costs will lead to a loss
| of more than $5 billion. It expects a major revenue jump next
| year to $11.6 billion
|
| The article linked[0] is from last year.
|
| A recent article[1] from this year says "OpenAI looks to meet its
| full-year revenue target of $13 billion and a cash-burn target of
| $8.5 billion, the report added."
|
| [0]https://www.reuters.com/technology/artificial-
| intelligence/o...
|
| [1] https://www.reuters.com/technology/openais-first-half-
| revenu...
| Rudybega wrote:
| Yeah, this is a pretty major error. They already have a higher
| revenue than the article's quoted "jump next year" (which was
| this year and was an underestimate).
| NewsaHackO wrote:
| Don't worry, people in the thread are now going to pivot to
| "Uhh, _those_ numbers don 't matter! Here's an opinion from
| some tech blog about the financials of a private company!"
| emp17344 wrote:
| Aren't they still deep in the red? What's the justification for
| claiming they'll become profitable?
| JCM9 wrote:
| Mixing the AI bubble with the financial system. What could
| possibly go wrong.
| chrisoconnell wrote:
| I mean, let's be honest there. This is much different than the
| blockchain bubble, in which 2/3 of the population is actually
| utilizing or interacting with AI daily.
|
| While, yes, it's overhyped and takes up too much of the
| spotlight, it isn't going anywhere and is going to continue to
| be a staple in our lives moving forward, and will continue to
| increase in impact as it improves.
|
| Blockchain will always be blockchain, and it was absolutely a
| bubble. Will it improve? Sure. Will it ever be as impactful to
| the everyday individual as AI? Maybe, but most people will not
| know or care. It will mostly be a passive experience.
|
| AI will/has fundamentally changed how we work in the matter of
| 3 years. So, financial system jumping on board this, is much
| safer than jumping onboard crypto hype trains.
|
| (I'm not saying crypto is bad / is a bad investment, but lots
| of crypto and ai startups are both trash, well, most startups
| are trash, I say that as a founder who has had many trash
| ideas)
| ipaddr wrote:
| "AI will/has fundamentally changed how we work in the matter
| of 3 years"
|
| The past 3 years or the next 3 years or 1.5 years both ways?
|
| It hasn't really done that yet. The work from home zoom
| meetings has made a bigger impact. Maybe in a few years? Its
| on par with the metaverse at this point.
| hansmayer wrote:
| > I mean, let's be honest there. This is much different than
| the blockchain bubble, in which 2/3 of the population is
| actually utilizing or interacting with AI daily.
|
| You do remember that by the time the blockchain bubble burst,
| literally everyone and their mother were "interacting" with
| it?
|
| > AI will/has fundamentally changed how we work in the matter
| of 3 years
|
| For people in bullshit jobs creating workslops, yes its
| probably an absolute blessing. Enjoy it while it lasts.
| akshayshah wrote:
| I'm no expert in corporate finance, but whether or not OpenAI
| goes bankrupt feels like the wrong question to me (in thinking
| about this loan). Wouldn't a bank be more concerned with (1) the
| likelihood that OpenAI can raise another round of financing from
| which to repay the bank, and (2) the likelihood that OpenAI will
| have assets worth >10B when/if they do eventually declare
| bankruptcy?
|
| The bank's risk seems quite a bit lower than the VC's risk.
| Closi wrote:
| Also 5% would be a ridiculously low rate for this sort of
| corporate finance. You would expect more like 8-12% I think?
|
| Plus the post seems to only include 1 year of interest.
|
| Unless we know the terms, I don't think we can necessarily
| calculate EV from JP Morgan's perspective. I would say that
| they aren't usually carelessly giving away money though... They
| probably have terms where they can get out early if OpenAI's
| position weakens etc.
| nradov wrote:
| JPMorgan Chase might not mind ending up owning much of OpenAI's
| IP if they default on the loan. Banks have largely been locked
| out of making equity investments in OpenAI so far so perhaps
| they see this as the next best alternative?
| photonthug wrote:
| > feels like the wrong question to me
|
| I agree but had different questions. TFA mentions the
| consideration of whether failure cases are correlated, but of
| course if OpenAI wins big, there's a good chance this directly
| or indirectly creates much instability and uncertainty in many
| other loans/partners. What's the EV on whether _that_ is net-
| positive considering this is a loan at 5% and not an
| investment?
|
| On the other side, if OpenAI crashes hard, is it really such a
| sure thing that Microsoft will be the on the hook to pay off
| their debts? Setting aside whatever the lawyers could argue
| about in a post-mortem, are they even obligated to keep their
| current stake / can they not just divest / sell / otherwise cut
| their losses if the writing is on the wall?
| beambot wrote:
| Secured debt doesn't go to zero in the 90% failure mode...
| adventured wrote:
| All that text to somehow not realize that large companies
| routinely take on banking relationships, including debt,
| specifically to start cultivating the various relationships/trust
| they'll want access to in the future. Apple and Microsoft both
| did this at massive scale even though they didn't have to, in
| order to prime the debt markets in regards to
| relationships/trust.
| ferguess_k wrote:
| At this point I would rather consider this kind of large loans to
| be "political" than "technical", that is say, they may or may not
| make sense in terms of $$$, but may make a lot of sense in other
| areas.
| groby_b wrote:
| My very first thought was that somebody needs to take the lead
| for the IPO circus...
|
| (Also, a revolving credit facility is not a loan, which this
| discussion misses)
| einrealist wrote:
| They don't need an IPO. "Private equity funds" are already
| being offered to retail investors. Less oversight and a way to
| pass the risk to gullible retail investors.
| ericmay wrote:
| The scenario and assumptions used in this are not just wrong, but
| they are simple and wrong.
| seanhunter wrote:
| What a weird analysis.
|
| A company that has revenues and is extremely well-capitalized
| gets debt finance. That is not news. That is totally commonplace.
| "Shouldn't all their capital come from investors?" No. Companies
| at all stages typically use a mixture of debt and equity finance.
|
| His EV calculation is completely flawed also. Debt finance is
| typically senior to equity in recovery at bankruptcy, so when
| JPMC do this analysis (and believe me they did this analysis)
| they are not assuming 0% recovery. They are thinking it is most
| likely in a bankruptcy that they get some x>0% recovery.
|
| Finally, banks don't think about their relationship with a multi-
| billion-dollar company in terms of the ROI on a single revolving
| credit. (even though this will in all likelihood be very
| profitable for JPMC). They think about how giving this revolving
| credit makes it more likely they get advisory on any future bond
| issuance and I-banking work when OpenAI want to do takeovers, and
| a foot in the door at IPO time etc.
| addicted wrote:
| Are there other examples of well capitalized technology
| startups that have significant revenues that have also opted
| for significant debt financing?
| frankchn wrote:
| Amazon issued $1.25 billion in convertible debt in 1999:
| https://www.wired.com/1999/01/an-amazonian-debt/
| dmurray wrote:
| Convertible debt is very different: if you do the same
| (simplistic) analysis as in the article, it behaves almost
| like the equity example, not the debt one.
| Closi wrote:
| Amazon?
|
| https://www.seattletimes.com/business/amazon-pays-off-its-
| hi...
| neom wrote:
| We had _way_ more debt than venture financing in the pre-ipo
| days of DigitalOcean. Thanks Michael Dell!
| reaperducer wrote:
| _Are there other examples of well capitalized technology
| startups_
|
| I think we're well beyond the point where OpenAI can be
| called a "startup."
| epolanski wrote:
| Pointless argument unless you define what startup means.
|
| Different dictionaries provide different definitions.
|
| A common one is that it's small and recently started
| business, but it's a very vague boundary.
| shmatt wrote:
| This is literally the reason behind the collapse of Silicon
| Valley Bank. Debt keeps your cap table untouched, its very
| tempting at certain stages
| empath75 wrote:
| I'm going to paraphrase Matt Levine here -- the central trick
| of bankers is to divide debt into tranches of claims of
| different seniority, with different rates of return. Debt is
| a way to borrow money from investors where they actually have
| a generally low rate of return specified and have a senior
| claim on being paid back in the case of insolvency. Stocks
| are a way to borrow money for investors where they get
| basically _nothing_ in the case of insolvency, but they
| expect a higher return from either dividends or stock buy
| backs, or just from company growth. Different investors have
| different goals in terms of risk/reward for what they want
| out of a company they invest in, and providing investors more
| options unlocks more opportunities to raise money.
| JumpCrisscross wrote:
| > _well capitalized technology startups that have significant
| revenues that have also opted for significant debt
| financing?_
|
| Debt is almost always cheaper than equity. Particularly if
| you can collateralise.
|
| Well-capitalized companies rejecting debt is more of a
| Silicon Valley outlier in the global economy. (It likely
| stems from dot-com trauma.)
| mamonster wrote:
| The other part is that it's a revolver, not a bond.You only pay
| what you use. It's not uncommon in VC. If you need to buy stuff
| now but your next round is in 2 months the revolver saves your
| ass. And once you raise you pay it back.
| appleiigs wrote:
| Yeah, I thought it was weird right away too, but brush it off
| as a tech blog... but then I realized it's actually a finance
| website. Ruins the credibility of the website instantly.
|
| The $4B revolver will likely sit undrawn. When it gets drawn,
| there usually a specific plan to reduce it back to zero. It's
| not for building data centres, a revolver typically used just
| for timing differences like a credit card is used (and the
| lenders will be paying attention). Also, when things get bad,
| there are covenant triggers which would allow lenders to
| renegotiate.
| agentcoops wrote:
| Agreed. Crucially, it doesn't ask _why_ they want this line of
| credit and assumes it's to serve as an equal source of
| financing as capital investment. Yet, I think the reason for
| this credit line is rather straight-forward risk management: it
| is not at all inconceivable that any one of the numerous legal
| proceedings the firm is already entangled in (to say nothing of
| ones surely to come) conclude in settlements that would be
| existential without it. If I were an OpenAI investor, I would
| certainly want a story for how they would handle such an
| expected emergency. A few other high-growth startups are
| publicly known to have obtained such a line of credit at a
| similar stage.
| chadash wrote:
| The math is wrong:
|
| > Cost: $1,000 Case 1 (90%): OpenAI goes bankrupt. Return: $0
| Case 2 (9%): OpenAI becomes a big successful company and goes
| 10x. Return: $1,000 + 5% interest = $1,050 Case 3 (1%): OpenAI
| becomes the big new thing and goes 100x. Return: $1,000 + 5%
| interest = $1,050
|
| The actual math is that if OpenAI succeeds, then there's a nod
| and a wink that JPM will land the lead role in the IPO or any
| mergers/acquisitions, which translates into huge fees.
| addicted wrote:
| This is correct.
|
| This isn't a financial transaction. This is a "relationship"
| transaction.
| JamesBarney wrote:
| Not to mention the risks that OpenAI even if it does goes
| bankrupt sells for less than 4b is not anywhere close to 90%.
| empath75 wrote:
| Also, if OpenAI goes bankrupt, you _much_ prefer to have loaned
| them money to having bought shares in the company. People who
| own shares in a bankruptcy only recover anything after all the
| people that loaned them money are paid back in full.
| shmatt wrote:
| a company with 800 million weekly active users, and only losing
| $10B-$15B before implementing ads - which IMO is coming fast
| and soon to the LLM world - i would never calculate a 90%
| chance their shares end up at $0 before an exit option
|
| This is the easiest money and best relationship JPM could
| imagine
| kibwen wrote:
| _> a company with 800 million weekly active users_
|
| Wow, that's slightly more than Yahoo has. Well, had.
| unethical_ban wrote:
| TLDR - MS won't let OpenAI go bankrupt/get seized by JPM so
| they're loaning with the concept that MS is backing it.
| cs702 wrote:
| The loan is likely _secured_ by OpenAI 's assets, including
| hardware, facilities, and IP.
| OtherShrezzing wrote:
| The lead bank in OpenAI's IPO will take something like 4-5% of
| the biggest IPO in history.
|
| In the 1% scenario, JPM could be looking at tens of billions on
| the upside, if this loan secures them the lead.
| LudwigNagasena wrote:
| > Case 1 (90%): OpenAI goes bankrupt. Return: $0
|
| The loan value in case OpenAI goes bankrupt depends on the
| details of the deal.
| fred_is_fred wrote:
| It's almost certainly not $0 for JP Morgan. It might be $750 or
| $400 or whatever but it's not $0.
| johnwheeler wrote:
| It's silly to assume that they have a 90% chance of failure just
| because startups have a 90% failure rate or whatever.
| millipede wrote:
| > Ctrl-F "convertible"
|
| > 0 of 0 matches
|
| Some analysis.
| JamesBarney wrote:
| > However, there's no speculation about what their earnings will
| be because they're currently selling their services below cost
| and there isn't really any story as to how they'll turn this
| profitable.
|
| Do we know they're selling their services below cost? I'm pretty
| confident they're making money on inference and burning through
| large piles of cash on capex and research.
| fred_is_fred wrote:
| "We're the primary lender for the AI boom" has some $$$ value as
| well.
| deanputney wrote:
| I've determined that it's a bad idea for me to write an article
| like this because every time I've seen one of these they're
| absolutely riddled with errors and incomplete information. I have
| no doubt I'd do worse!
| NewsaHackO wrote:
| >OpenAI is not a profitable company.
|
| People have to stop saying this with NO evidence to back it up.
| And by evidence I do not mean random investors opinions,
| anonymous "insider" infomation, etc. Give numbers. Saying the
| same thing 1000x doesn't make it true.
| swarnie wrote:
| Surely the burden of proof lies on the more unbelievable side?
|
| Show me how a company setting never before seen piles of money
| on fire is profitable. Until someone can i'll happily keep
| claiming they're unprofitable.
| NewsaHackO wrote:
| The burden of evidence is on the side of the person making
| the claim.
| ImPostingOnHN wrote:
| The claim is that they are profitable -- all businesses are
| unprofitable until proven otherwise. That's the null
| hypothesis for business profitability. The null hypothesis
| is what must be disproven with evidence.
| NewsaHackO wrote:
| That's not the definition of null hypothesis buddy
| ImPostingOnHN wrote:
| I am not convinced by your assertion there, friend. Do
| you, in fact, have evidence they are profitable?
|
| Obviously we cannot assume every business is profitable
| unless proven unprofitable. That's why reporting and
| audits exist.
|
| Note that they totally could be! I'm not asserting one or
| the other. But unprofitable is the default, absent
| evidence.
| NewsaHackO wrote:
| Huh? I never said they were profitable. In fact, I never
| even said they were not unprofitable.
| ImPostingOnHN wrote:
| Right, I am saying there is no evidence they are
| profitable, so we fall back to the default, that they are
| unprofitable.
|
| Indeed, the other poster seems right: _" The burden of
| evidence is on the side of the person making the claim"_
| is simplistic and reductionist. _" The burden of proof
| lies on the more unbelievable side"_ is more appropriate.
|
| Taking an example: If I said the earth was not flat, and
| someone else told me to prove it, that proof would be
| unnecessary, because the earth being flat is more
| unbelievable than the alternative.
| NewsaHackO wrote:
| >Taking an example: If I said 1+1=2 and someone else told
| me to prove it, that proof would be unnecessary, because
| 1+1=2 is more believable than any alternative sum.
|
| Oh, so you are just trolling. Got it.
| hansmayer wrote:
| What do you mean "no evidence"? The Information had just
| published a concrete analysis showing the OpenAI is spending
| the threefold of what they collect in revenues. And many other
| bloggers, Ed Zitron being one of the better known ones, have
| been writing about it forever.
| NewsaHackO wrote:
| Nope, proven wrong upthread :)
|
| >A recent article[1] from this year says "OpenAI looks to
| meet its full-year revenue target of $13 billion and a cash-
| burn target of $8.5 billion, the report added."
|
| [1] https://www.reuters.com/technology/openais-first-half-
| revenu...
| hansmayer wrote:
| Well, OpenAI "looks to" a lot of things (AGI by the end of
| 2025 was also one stated goal), but unfortunately, facts
| are something else. Your artical sums up the costs for
| running ChatGPT to 2.5B + another 6.7B for "research and
| development", a.k.a. bunch of PhDs tweaking the model
| weights - so that is a total of what, roughly 9B USD?
| Congrats, their burn for the first half was not 3x times
| the revenue, it was "only" slightly over 2x times that. I
| am not sure where did they pull the projection for ~13B
| revenue for the whole year, if they generated only a third
| of that in the while first half of it? Maybe from that
| latest pivot, erotica-ChatGPT, but otherwise...no.
| Legend2440 wrote:
| There's a lot of motivated reasoning going on around here.
| People _want_ AI to fail so it doesn't threaten their $300k
| developer salary.
| hansmayer wrote:
| No nothing to do with that. Read up on the report by The
| Information about how much OpenAI spent in the first half-
| year vs. how much they collected in revenues, maybe that will
| clear things up ?
| emp17344 wrote:
| This kind of comment isn't helpful. Of course, people around
| here also want AI to succeed for various reasons. Everyone
| has an agenda. Judge based on the merit of the argument.
| Legend2440 wrote:
| The issue is that motivated arguments aren't honest. It
| becomes like arguing about politics or religion.
|
| If it turns out that OpenAI becomes wildly profitable,
| they'll just shift to some other argument about the
| environment or the specialness of human thought or
| whatever.
| emp17344 wrote:
| But they aren't profitable, and there's no clear path for
| them to become profitable. The people you're railing
| against aren't exactly wrong to be skeptical.
| Legend2440 wrote:
| The "clear path" is they stop building new datacenters
| and spending billions on R&D to train new models. This
| would make them profitable overnight.
| adrr wrote:
| Big banks will give sweetheart loans to startups and officers of
| startup for the opportunity to take a company public. They'll
| make billions on the IPO.
| ohdeardear wrote:
| It's not just strange, but completely regarded, _assuming_ no
| more information, but since it's JPM, of course they know more,
| which probably make it a lot less regarded.
|
| I would not be happy with this trade if I had any $JPM.
| lordnacho wrote:
| 1) If OpenAI goes bankrupt, JPMC will get more than 0 on their
| loan. For some reason I have yet to comprehend, when I was
| sitting on a credit desk pricing CDS, they always used 40% as the
| recovery rate. I ran into a credit guy who taught finance at two
| very famous universities, and he also immediately said 40%, with
| no explanation.
|
| 2) It's a revolver, it's not all being used
|
| 3) If things go great and OpenAI ends up buying smaller guys or
| getting bought out (probably MSFT?) then JPMC will be right in
| there with those young bankers who don't sleep. They will pull in
| many many millions in fees with very little expense.
|
| 4) If things don't go great, OpenAI will be looking for more
| financing. Guess who will help them?
|
| 5) It's really only in case there's an Enron things are terrible
| for JPMC. Like if it turns out the whole thing was a bunch of
| guys in India answering every ChatGPT query, something like that.
| If there's actually an AI business, and despite JPMC's history of
| due diligence misses (Javice case) that's probably the case, then
| there's deals to be done.
| ivape wrote:
| _4) If things don 't go great, OpenAI will be looking for more
| financing. Guess who will help them?_
|
| Who? I can only think of the Saudis/UAE and SoftBank.
| lordnacho wrote:
| If Softbank buys OpenAI, they don't just sign a contract and
| send a cheque. They need powerpoint slides from JPMC to make
| the deal happen, and that costs money.
| dsr_ wrote:
| The 40% historical recovery rate comes from a long line of
| companies that actually built things and produced products,
| often in factories with equipment in them... and a warehouse
| full of product that didn't sell at full price.
|
| If OpenAI folds, there are two basic scenarios:
|
| - one: the LLM crash has come, and OpenAI barely has any
| material assets. Microsoft isn't putting more money into it,
| and they won't take it over -- people with seven figure
| salaries will be looking for six-figure jobs.
|
| - two: somehow, only OpenAI crashes, and the rest of the LLM
| boom continues. This likely involves OpenAI being
| extraordinarily outcompeted, so it's a long slow decline as
| contracts run out and are not renewed. 40% is probably high,
| but if JPM can retract the revolving debt before it all goes
| out the door, not ridiculously high.
| JumpCrisscross wrote:
| > _the LLM crash has come, and OpenAI barely has any material
| assets_
|
| They have claims on the use of assets via their leases.
|
| More directly, if AI crashes in the next 2 years, they get
| bailed out. Between OBBA, tariffs and immigration
| enforcement, the American economy less AI is probably already
| in a recession. Trump and the GOP would get desperate if the
| political leash the AI boom has granted them is shortened.
| Borrowing another few trillion dollars to fix it would be
| worth the gamble.
| tgma wrote:
| It was a waste of time to read. TLDR is if OpenAI were a random
| startup it'd be strange but because it has credible shareholders
| that stand to lose in a bankruptcy (weirdly constructed
| argument), it's probably safe enough.
|
| Duh. Basically the author wrote a word salad to say the bank
| calculated the probability of them losing money would be lower
| than what the author pulled out of their ass at the beginning of
| the article, refuting their own hypothetical point.
| vincefutr23 wrote:
| - a company with 800m weekly actives is not going bankrupt
|
| - existing models are profitable if cutoff future training and
| focused on inference
|
| - debt is senior to equity
|
| - if my life depended on one company not going bankrupt over the
| next decade I'd pick OAI over Citibank
|
| - banks use revolving credit as a break even or loss leader for
| higher fee business
|
| - high fixed cost businesses use debt and equity to scale
|
| - lead investors would very rarely pay down the debt of an
| investment, that's not the backstop
|
| - unlikely for revolving credit, but a convertible structure
| could mitigate any perceived asymmetric downside
| ghawr wrote:
| This is not a serious person.
|
| Taken from the About page:
|
| Who are you? Hi, I'm the author. I've been dabbling in investing
| since 2015 and I decided to get more serious about it in 2023.
|
| Is this financial advice? No. In fact, everything you read here
| is be half-baked by design. If it were fully-baked, then I
| wouldn't have felt the need to write about it in order to distill
| my thoughts.
| markdown wrote:
| Ad hom
| wellwelloctober wrote:
| I used to work in IB and I'm not that surprised: * Revolving
| credit facilities tend to have the highest priority of corporate
| debt when it comes to going after assets in the event of default
| * RCFs are often about relationship management rather than making
| money as others have pointed out * Credit agreements (that set
| out the terms of RCFs) often include a lot of triggers/rules
| about how much can be drawn and at what rate to protect lenders.
| e.g. If revenues are below Y you can only borrow Z
| Havoc wrote:
| Banks are pretty chill about these things. I've been controller
| on something with a billion+ revolving facility myself.
|
| You can basically throw the entire analysis out on a single
| point:
|
| >Case 1 (90%): OpenAI goes bankrupt. Return: $0
|
| It won't be $0. Creditors have liquidation priority and banks
| make very sure they're confident in the quality of the collateral
| before handing out billion dollar facilities.
| mmooss wrote:
| Or the banks own the most valuable, exclusive, world-changing IP
| in decades. Nobody else really has a shot at that IP besides a
| few other extremely-capitalized AI companies.
|
| I'd loan them the money for that opportunity. It's possible that
| the IP will somehow turn out to be worthless; I don't know what
| will happen, but I am confident ruling out worthless. Could the
| lender could refuse Microsoft's payment - from a minority
| shareholder? OpenAI could accept Microsoft's money and pay the
| bank; with that offer, OpenAI would have leverage to play
| Microsoft and the lender against each other.
|
| OpenAI could go bankrupt for many reasons having nothing to do
| with the value of their IP. For example, they could overinvest in
| developing it - a positive outcome for the lender.
| RayVR wrote:
| This author obviously has no experience with investment banks.
|
| OpenAI is massive, fairly risky, associated with Microsoft, etc.
| all true. What matters to JPM is potential future business.
| There's potentially an enormous IPO in the future. The credit
| line is just good business. They are fostering the relationship.
| lumost wrote:
| The doomerism on OpenAI finances is unfounded IMO. They will
| survive and be a large company at this point. The big question
| marks are on just how big, when, and the cost to get there. If
| they lost all financing tomorrow, they'd deploy a cheaper model
| and slow down research. I don't have a hard time imagining that
| they could pull off a 75% reduction in costs in such a scenario.
|
| No one is OpenAI's financing while anthropic et al. keep raising.
| The big risk is that future innovation fails to live up to the
| hype and they can't afford full priced GPUs or the proposed
| datacenters.
| nextworddev wrote:
| A complete noob wrote this
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