[HN Gopher] Meta hiding $27B in debt using advanced geometry
___________________________________________________________________
Meta hiding $27B in debt using advanced geometry
Author : FreeQueso
Score : 312 points
Date : 2025-11-28 16:09 UTC (6 hours ago)
(HTM) web link (stohl.substack.com)
(TXT) w3m dump (stohl.substack.com)
| stevesimmons wrote:
| > The Outlook is Superficially Stable, defined here as "By
| outward appearances stable unless, you know, things happen. Then
| we'll downgrade after the shit hits the fan."
| colinbartlett wrote:
| Can anyone comment about how common this (apparently legal)
| practice is?
| rufusdali wrote:
| About as common as breathing.
| SpicyLemonZest wrote:
| Setting up a separate company for a major construction project
| is so common that it would be surprising to hear someone
| _didn't_ do it. The structure of the OP makes it hard to
| understand if there's some more specific aspect he's objecting
| to.
| sbierwagen wrote:
| A couple thousand of them in the US https://carta.com/data/spv-
| spotlight-q3-2024/
| SoftTalker wrote:
| MBAs gotta have something to do.
| asah wrote:
| LOL "The entity is named "Beignet," presumably because "Off-
| Balance-Sheet Leverage Vehicle No. 5" tested poorly with focus
| groups."
| lathiat wrote:
| This entire thing was a masterpiece I love it.
| SOLAR_FIELDS wrote:
| It definitely has the Voltaire/Onion like snark and cynicism
| with biting accuracy that really gets me going. We need more
| well informed rants disguised in heavy sarcasm
| seanmcdirmid wrote:
| It's a fitting name for Louisiana at least. But this place is
| next Monroe which is...nowhere near New Orleans.
| dfedbeef wrote:
| We get it you want it to be named Boudin
| seanmcdirmid wrote:
| Delta would be a good name. It's fairly near to the delta
| in reality.
| randycupertino wrote:
| Meta's accounting games are entirely reminiscent of Enron, who
| famously named their off-balance sheet debt-hiding special
| purpose vehicles after Star Wars "Jedi 1, Jedi 2," Jurassic
| Park, "Raptors 1 through 7," and the crooked CFO's kids "LJM"
| etc.
| cyanydeez wrote:
| AI companies are running the same frauds as multiple, but I
| think cryptocurrency/FTX is more apt. They're creating
| artificial demand by trading contract with themselves and
| using those assets to make it look like they've got more
| revenues & assets of value.
| NewsaHackO wrote:
| I assume you have no proof of this, correct?
| venturecruelty wrote:
| "A Love Letter to Enron" would sound really bad in the
| deposition.
| p4bl0 wrote:
| Relevant excerpts to understand what's at play here:
|
| > (...) _this is functionally Meta borrowing $27.30 billion for a
| campus no one else will touch, packaged in legal formality
| precise enough to satisfy the letter of consolidation rules and
| absurd enough to insult the spirit._
|
| > _The structure maintains a precarious technical separation
| that, under current interpretations of accounting guidance,
| allows Meta to keep roughly $27 billion of assets and debt off
| its own balance sheet while continuing to provide every
| meaningful form of economic support._
| exacube wrote:
| I asked ChatGPT to make this more readable since it's a mix of
| satire and actual information:
|
| (Clarification: I used a diabrowser.com feature to clarify the
| article, which uses ChatGPT underneath)
|
| ==============
|
| Meta wants to build a huge AI data center campus in Louisiana. It
| costs about $28-29 billion. Instead of just borrowing the money
| itself and putting the debt on its own balance sheet, Meta uses a
| maze of LLCs and contracts to:
|
| - Get $27.3 billion of debt raised by a special company called
| Beignet Investor LLC (80% owner of the project).
|
| - Keep that debt off Meta's official balance sheet, even though:
|
| # Meta designs the campus,
|
| # pays for overruns,
|
| # pays the rent,
|
| # guarantees the value at the end,
|
| # and will basically be the only user.
|
| In real life, this is basically Meta borrowing to build its own
| data center. On paper, it's "someone else's" debt.
|
| Why is this off-balance-sheet?
|
| The accounting rules say you only have to put an entity on your
| balance sheet if you "control" it and take on most of the
| risk/benefit.
|
| Meta's position is: "We don't control this JV company, even
| though we do all the important things and take on all the risk."
|
| The rating agency in the piece is mocking this. They list all the
| ways Meta obviously controls and supports the project, then say:
| under current accounting rules, if Meta insists it doesn't
| control it, we all politely pretend that's true. So the $27B debt
| doesn't show up on Meta's balance sheet, even though economically
| it's Meta's problem.
| bluGill wrote:
| If the llc declares bankruptcy does meta have to pay the bank
| for it - or can they buy the assets at fire sale prices?
| typs wrote:
| Meta doesn't actually owe the bank anything in this setup.
| That would be Blackrock and the other private creditors.
| friendzis wrote:
| I have skimmed through the article and if I get the details
| through all the humor, satire and sarcasm even remotely
| correct, the major _assets_ are actually the duality of
| payment obligations and residual value guarantees, both from
| meta. One could include cost overrun protection at the
| construction time too.
|
| The "fire sale prices" would be so delicious as to guarantee
| that the entity(-ies) involved stay solvent as long as meta
| stays solvent.
| detourdog wrote:
| My personal experience with LLC loans and banks is that the
| bank is using the assets as collateral and me as a
| backstop.
| mcny wrote:
| I thought the whole point of LLC was to limit liability
| so you wouldn't be liable for debt beyond your paid up
| capital? Why would you ever sign a personal guarantee?
| bdangubic wrote:
| banks are not stupid... you can't just open LLC, borrow
| billion bucks, spend it and then be like "oops, LLC
| mates, not liable"
| htrp wrote:
| You can if you are Meta and are willing to litigate the
| hell out of it.
| hrimfaxi wrote:
| Do you think any CEOs of gigantic corporations are
| personally liable for any loans made by the companies
| they work for? I would be incredibly, incredibly
| surprised to hear if that's the case.
| svnt wrote:
| More like if you are Meta and are viewed as a lucrative
| business opportunity by the bank.
| YetAnotherNick wrote:
| Then why don't they do it? It's the easiest money they
| can ever make. Even I can litigate the hell out of it if
| I get $27B, take the money and close the LLC.
| notatoad wrote:
| "If you are meta" in this case means "if you have a
| billion dollars already, and a credit rating that you
| don't want to destroy.
|
| Nobody is trying to pull one over on a bank here. Pricing
| the risk of the loan is a bank's whole business, they're
| happy to loan to meta because meta is meta, and they're a
| good candidate for a loan.
| detourdog wrote:
| The liability I'm shielded from is not debt I
| specifically requested. I'm shielded from unknown events.
| hrimfaxi wrote:
| Why would the CEO have the personal liability here and
| not the board? Does Sundar Pichai have to personally
| guarantee loans for Google? That would be weird since the
| CEO could be fired.
| svnt wrote:
| No, but this person's LLC is not capitalized quite as
| well as Google, and the bank is adjusting the loan to
| account for that fact.
| hattmall wrote:
| >Why would you ever sign a personal guarantee?
|
| So that they will lend you the money...
|
| It's not always required, depends on the amount and the
| business.
| richiebful1 wrote:
| "Me" in this case being a stand-in for the principal
| owner, which could be a corporation, individual, or group
| of individuals
| loeg wrote:
| Mechanistically, how would the LLC achieve bankruptcy?
| jmalicki wrote:
| you just... file for bankruptcy like any other person or
| corporation?
| loeg wrote:
| Yeah but when you come to bankruptcy court with
| significantly more assets than debt, they aren't going to
| let you sell the business for pennies.
|
| I'm asking _how_ you would believe this vehicle would go
| broke, which is the usual reason to go to bankruptcy.
| tjwebbnorfolk wrote:
| Corporate bankruptcy happens for a lot of reasons other
| than being "broke". Chapter 11 is a court-supervised way
| of restructuring your debt. This has a lot of utility in
| many situations other than not being able to pay.
| gruez wrote:
| It'll go before a judge and creditors would be able to
| object, so if it's just a ploy to get rid of debt you can
| be certain it'd be contested.
| jmalicki wrote:
| Meta may have lots of assets, but the LLC may not. The
| ability to have one wholly owned LLC go bankrupt by
| itself is one of the main reasons shell corporations
| exist.
| wmf wrote:
| Meta would have to not renew the lease and somehow nullify
| the residual value guarantee. This would leave the LLC with
| no revenue at all. If the RVG works there should be no
| chance of bankruptcy.
| cm2012 wrote:
| Very useful, ty
| bgwalter wrote:
| "None of this is unusual except for the part where Meta
| designs, builds, guarantees, operates, funds the overruns, pays
| the rent, and does not consolidate it."
|
| So ChatGPT put this sentence in list form and reordered it a
| bit. AGI is imminent!
| CPLX wrote:
| Is Meta actually obligated to repay the loans or not?
|
| That's how you can decide if this is disingenuous or not. If
| Meta is obligated to repay the loan and used to synthetic means
| to get it off the balance sheet that's a problem.
|
| If they have in fact _successfully_ transferred risk to other
| parties then that's what deals like this are for. It's the
| whole reason the concept of limited liability exists.
|
| I am fully willing to believe it's the former. But that's the
| test.
| xmprt wrote:
| Even if they aren't obligated to repay, they have to in
| practice because it'll impact their ability to get loans in
| the future. If the shell company declares bankruptcy and gets
| the loans off Meta's books no one will ever loan money to
| Meta again.
| Aurornis wrote:
| They would still be able to get loans, but the terms would
| be much worse.
|
| Basically, if we're reading about it from substacks and
| Matt Levine's newsletter then it's already fully common
| knowledge in the finance world.
| loeg wrote:
| Eh, debt investors have short memories. They buy 100 year
| bonds from Argentina, for fuck's sake. It might limit
| Meta's ability to do this SPV trick.
| loeg wrote:
| I don't think Meta has a debt relationship with the loans
| involved here; that's the point. It does have strong
| contractual obligations to the wrapper business, though.
| gruez wrote:
| >Is Meta actually obligated to repay the loans or not?
|
| They aren't, but they're obligated to pay leases for it (they
| can't just build the datacenter and then walk away), which is
| kind of like having to repay the "loans".
| jfengel wrote:
| I'm not an accountant, but "contractually obligated to pay"
| sounds like a debt to me.
|
| If the Generally Accepted Accounting Principles don't
| require that to manifest on the balance sheet, then it
| sounds like the principles aren't very good ones.
| AndrewKemendo wrote:
| This might be the first time an explicit ChatGPT response
| survived being the top comment
|
| I personally think it's a great response and makes it clearer
| what's happening
|
| Times are changing quickly!
| pezgrande wrote:
| One year ago was taboo to say you were using LLM to help you
| code, today is the other way around...
| lazide wrote:
| This isn't to code. It's tk summarize - something LLMs are
| usually good at, since they're essentially lossy
| text/knowledge compression at their root.
| int3trap wrote:
| Yeah... no it's not.
| AndrewKemendo wrote:
| This is testable:
|
| Can you link to another one?
| Aurornis wrote:
| > today is the other way around...
|
| It is definitely not taboo to say you're writing your own
| code.
| bdangubic wrote:
| could get you fired in more and more places though... :)
| lawlessone wrote:
| where?
| Aurornis wrote:
| If you only see the world through crazy headlines, this
| probably seems true.
| bdangubic wrote:
| not just headlines, former colleagues and friends
| crazygringo wrote:
| Seriously. I thought about doing the same because I couldn't
| make heads or tails of the article, and then assumed it would
| just all be downvotes... glad to see it wasn't.
| NetOpWibby wrote:
| Thank you, I actually understand what this is all about now.
| selimthegrim wrote:
| This is hilarious because I was at the Louisiana public utility
| commission meeting where the argument was basically it's Meta
| borrowing the money so they're good for it.
| loeg wrote:
| 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...
| .
| illwrks wrote:
| So... 'vanity' ratings... what's the point of them then.
| rsync wrote:
| 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_oblig
| ation
| illwrks wrote:
| 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.
| Aurornis wrote:
| 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.
| illwrks wrote:
| 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.
| Aurornis wrote:
| 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 wrote:
| Ah ok, now that makes sense. Thank you.
| everybodyknows wrote:
| > 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 wrote:
| Still too verbose. Here's a TL;DR.
|
| Meta is borrowing a whole lot of money and they're lying
| about it to investors.
| loeg wrote:
| No one is lying or deceived here.
| toomuchtodo wrote:
| 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.
| SpicyLemonZest wrote:
| 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?
| robocat wrote:
| A nice article on the underlying systemic causes of the
| crash:
|
| https://archive.ph/2015.11.08-145615/http://www.wired.com
| /20...
| lazide wrote:
| Except 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!
| emp17344 wrote:
| It's not necessarily lying, but it's certainly deceptive.
| ejoso wrote:
| 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 wrote:
| Usually subsidiaries' debt is not also debt on the parent
| company, especially when said parent is publicly traded
| and subject to accounting/disclosure rules.
| bregma wrote:
| 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 wrote:
| 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.
| RA_Fisher wrote:
| They can get a better interest rate by using a specialty data
| center lender.
| NewsaHackO wrote:
| wow, what a great summary.
| MonkeyClub wrote:
| I don't get why Beignet doesn't also hire Meta and pay it to
| build the DC.
| slurrpurr wrote:
| reading is really hard. I'm so happy ChatGPT exists
| Spooky23 wrote:
| I think it's naive to focus on "what is meta getting" from
| Beignet.
|
| As an example to stimulate your imagination, Walmart has
| settled as recently as 2019 to resolve liability due to weak
| internal controls that allowed "third party affiliates" to
| bribe local officials and others in various ways.
| master_crab wrote:
| I asked almost this same question a few weeks ago here:
|
| https://news.ycombinator.com/item?id=45628186
|
| _But the one thing that doesn't compute is the commitment.
| There is a long term obligation now incurred by meta to use
| this infrastructure. If it's a capital lease I assume this is
| now a liability on their books (and disclosures)?_
|
| Fade-Dance had a fairly reasonable answer to it:
|
| _Maybe they don 't want to securitize their core assets and
| introduce a new favored class of investor. Ex: If they are
| securitizing their AI data centers as part of the initial
| capital raise, those investors would be higher up the capital
| stack. They would get the datacenter in a theoretical
| bankruptcy before the bond/equity holders got their cut of the
| liquidation. Intel securitized their new fab builds with
| Brookfield and Apollo and, as a shareholder at the time, it
| didn't feel great. No idea what the precedent is regarding Meta
| by the way, just a thought. Maybe they think that the lenders
| are a bit "overzealous", and they want to push the risk of
| things like write down on GPU racks entirely onto external
| parties who are apparently all too happy to take the risk. I'm
| guessing it's a mix of both, combined with the fact that we're
| seeing some copy and paste thinking. This is proving to be a
| way to get fast access to the huge private credit market. I
| would assume there must be some very wide deal flow pipes
| cranking currently, so why not tap into them if the demand is
| there in the other end._
| yellow_lead wrote:
| Unfortunately I didn't find a mention of any mathematical
| geometry in the article.
| totallymike wrote:
| Folks in the comments here begging ChatGPT to teach them how to
| read
| pyvpx wrote:
| It is so hopelessly depressing. I was wrapt reading it from
| start to finish and thoroughly enjoyed it as few recent
| articles at length have been.
|
| And then going to the comments, excitedly no less, to
| find...this?
|
| Jfc :'(
| epistasis wrote:
| The difficulty understanding this piece comes from lack of
| knowledge about finance and ratings, not from an inability to
| read. The blog assumes a large amount of financial knowledge
| which is not common among the HN audience.
| crote wrote:
| It seems fairly understandable even without financial
| knowledge?
|
| 1. Facebook creates a shell company.
|
| 2. The shell company borrows billions of dollars, and builds
| a data center.
|
| 3. Facebook leases the data center.
|
| 4. The fact that it is _technically_ only a four-year lease
| with only one possible tenant can conveniently be ignored, as
| Facebook assumes essentially all possible risks. The shell
| company could only possibly lose money if Facebook itself
| goes under, so the lenders can treat the loan as just as
| reliable as Facebook itself.
|
| 5. Because Facebook _technically_ only has a four-year lease,
| it can pretend it doesn 't actually _control_ the shell
| company: after all, it can always just decide not to renew
| the lease. The fact that is assumes essentially all possible
| risks can conveniently be ignored, so Facebook can treat it
| as a separate entity and doesn 't have to treat the debt as
| its own.
|
| So the lenders are happy because there's no real risk to
| them, and Facebook is happy because they can pretend a $27B
| loan doesn't exist. It's a win-win, except for the part where
| they are lying to their shareholders about not taking on a
| $27B loan.
| walletdrainer wrote:
| This whole blog reeks of WSB, pretty sure the target audience
| is not people with a large amount of financial knowledge.
| Aurornis wrote:
| This article is poorly written. It's so desperate to be clever
| and edgy that it's hard to get the facts out of it.
|
| ChatGPT isn't really a solution because the source is both low
| quality and has questionable motives. Going to any of the other
| good articles on the subject that have been linked in this
| comment section is much better.
| bdangubic wrote:
| this is the future of human-written articles - they will
| obligatory be written like this as 99% of article comments on
| HN these days is "oh, this is AI written." :)
| parliament32 wrote:
| It's well written for its target audience, people who are
| used to reading financial analyses.
| Aurornis wrote:
| Hard disagree. I read a lot of well-written financial
| analyses and this isn't it at all.
|
| The target audience is people who want to be angry at Meta
| and think that they're smarter than finance people.
| walletdrainer wrote:
| While I've seen a plenty of silly reports from big bank
| analysts, they usually have the advantage of not coming
| across like complete idiots when saying things like this
|
| > We assign a preliminary A+ rating to the notes, one notch
| below Meta's issuer credit rating,
|
| It's hard to get away with that when the report is
| attributed to a company and person which don't seem to
| exist, hosted on some randos substack. Wording like that
| works way better when it comes from a sender with an
| address ending with @bigbank.com
|
| Of course, the latter parts of the post (Disclaimer and
| Limitation of Liability) do reveal pretty definitively that
| this is obviously not intended to be a serious report.
|
| As for the content itself? The author tries really hard to
| turn a whole lot of nothing into something, and horribly
| misinterprets the GAAP in the process.
| turtlesdown11 wrote:
| It's actually written quite well, you just have to understand
| the underlying financial documents and methodology.
|
| Things that are hard to read because you lack context is not
| the same as poor writing.
| Aurornis wrote:
| No it's not. It's sarcastic, snarky, sneery content that
| appeals to a certain group.
|
| The actual subject matter has already been covered well by
| good writers like Matt Levine, WSJ, and others.
| turtlesdown11 wrote:
| > No it's not. It's sarcastic, snarky, sneery content
| that appeals to a certain group.
|
| What on earth does your second sentence have to do with
| the quality of the writing? Try just a bit to separate
| your emotions from the text.
| venturecruelty wrote:
| Don't say "I'm critical of AI", say "I have questionable
| motives"!
| rs186 wrote:
| It is not the reader's fault if the article is unreadable in
| the first place.
|
| Not to mention that asking help to explain a text is extremely
| common. I can read English, but I have never read a US supreme
| court ruling. There are much better ways for me to understand
| those rulings to me as a non-lawyer.
| tyre wrote:
| Many SCOTUS opinions, especially the major ones, are very
| readable! The justices and clerks are excellent writers.
|
| The most publicly notable cases (on things like abortion,
| gerrymandering, gun control, etc.) aren't so tied down in
| complex precedent or laws the average person is unfamiliar
| with.
|
| Although, even some of those (like, for me, issues around
| Native American sovereignty or maritime law) are quite
| readable as well.
| turtlesdown11 wrote:
| > I can read English, but I have never read a US supreme
| court ruling. There are much better ways for me to understand
| those rulings to me as a non-lawyer.
|
| Having admitted to never having read a SCOTUS ruling, how can
| you then proclaim there are better ways for you to
| understand? How could you possibly make that assertion if
| you've never read a SCOTUS ruling?
| austin-cheney wrote:
| > This treatment is considered acceptable because the people who
| decide what is acceptable have accepted it.
|
| Wasn't that the root of the 2008 crash? The debt spiral was
| acceptable because people were making enough money in the present
| that regulators were powerless to advise against it. In a sane
| world people often go to jail for decades when doing this at
| pennies on the dollar.
| loeg wrote:
| The 2008 crash was in part caused by inaccurately rating
| synthetic bundles of subprime mortgage debt as extremely low
| risk (e.g. AAA). Subprime borrowers had a much higher risk of
| defaulting than a AAA rating implied.
|
| On the other hand, Meta has great creditworthiness. And
| guarantees this vehicle. So... it's not the same.
| tyre wrote:
| Isn't part of its creditworthiness how much debt it's
| carrying? And if it's shifting that off of its balance sheet,
| then it appears in better shape than it actually is.
| underlipton wrote:
| Until they don't. Lest we forget that Facebook's new handle
| was borne out of a pivot that's sunk almost a hundred billion
| dollars while being having been largely sidelined/abandoned.
| (I know that they're still doing a good deal of R&D, which is
| good, and a worthy investment, but 1) Carmack left, and 2) We
| apparently don't judge corporations on whether or not they're
| contributing to society, but only on whether they're in the
| red or black.)
| sethops1 wrote:
| Except they're taking on a huge amount of debt, enough that
| it would lower their credit rating, which is why they're
| trying to offload it ...
| austin-cheney wrote:
| That's not accurate.
|
| This is debatable but subprime loans were mostly accurately
| rated. They were rated very low. That low rating was the
| ultimate precursor to the crash, because it means banks
| carrying those poorly rated vehicles needed to balance them
| with different highly rated vehicles to keep their own rating
| high enough to qualify carrying and lending other financial
| assets on their books. There were so many of these shitty
| loans that they had to repackage them to dilute their
| value/rating against their other highly rated assets, because
| there are limited number of highly rated assets any given
| bank could acquire at a moment.
|
| That dilution was called a credit default swap, which is
| bundling under the guise of an insurance vehicle. This
| magnified the problem for two reasons: First these shitty
| assets can now be traded in large bulk and secondly any given
| bank can now carry more of them before further eroding their
| value. That proved catastrophic because this toxic debt could
| not be moved fast enough by anybody that held them. Its like
| hot potato or musical chairs, like Bitcoin. The only real
| difference between those credit default swaps and Bitcoin is
| only that everybody knows Bitcoin is intrinsically worthless
| and only exists as an instrument of speculation while many
| people actually thought these credit default swaps were real
| financial assets and that they were insured.
| loeg wrote:
| The other parts of the 2008 crisis are even more dissimilar
| to this scenario than the MBS ratings.
| cyanydeez wrote:
| Right, this is more like wash trading, in that companies
| like Meta are trying to syntehtically make it look like
| there's more assets involved in AI than there really are.
| venturecruelty wrote:
| Enron had great creditworthiness, too. They are, famously, a
| very rich and powerful company today.
| lenerdenator wrote:
| > Wasn't that the root of the 2008 crash? The debt spiral was
| acceptable because people were making enough money in the
| present that regulators were powerless to advise against it. In
| a sane world people often go to jail for decades when doing
| this at pennies on the dollar.
|
| I mean, yeah, but at the same time, and?
|
| The lesson learned from 2008 was that no one was going to do
| anything of consequence to degenerate gamblers who kneecapped a
| generation's economic prospects. Then, in 2024, we doubled down
| on that position.
|
| The behavior will continue until an effective consequence is
| introduced.
| mertd wrote:
| This is hardly a secret. Matt Levine blogged about it:
| https://www.bloomberg.com/opinion/newsletters/2025-10-29/put...
| lxgr wrote:
| Does it need to be a secret to be noteworthy, especially if
| it's apparently working despite not being a secret anymore?
| mertd wrote:
| I meant to say it's not new information. The blog post I
| linked is from a month ago. It is also more accessible for
| casual reading.
| lxgr wrote:
| > I meant to say it's not new information
|
| So? As usual, xkcd 1053 applies :) https://xkcd.com/1053/
| brazukadev wrote:
| And? At least find the previous HN discussions if you are gonna
| say this is old news.
| JoshTko wrote:
| I'm guessing Meta isn't the only one doing this
| epistasis wrote:
| You would guess right, and I have even heard that this sort
| thing has been standard practice for a long time, without
| nefarious intent.
|
| The problem is that even standard practice, without nefarious
| intent, can cause massive financial collapse. If, say, the vast
| majority of economic growth were being focused into such
| vehicles, the lack of transparency could make people misanalyze
| the situation and result in bad valuations that collapse when
| it all becomes transparent.
| loeg wrote:
| Right.
|
| > I should say that the big tech companies did not invent this
| technology to build AI data centers. This sort of thing --
| project finance, non-consolidated joint ventures, borrowing out
| of boxes -- has a long history in a lot of capital-intensive
| industries.
|
| Levine attributes a recent increase to private credit.
|
| https://www.bloomberg.com/opinion/newsletters/2025-10-29/put...
| barchar wrote:
| Yeah, it's very dumb to own real estate like this directly for
| a c-corp
| hrimfaxi wrote:
| Is it dumb for tax reasons?
| barchar wrote:
| Yes. 21% CIT + 15-20% LTCG for the owners.
|
| RE throws off much income.
|
| It's also difficult to transfer the RE to another entity
| without realizing gains.
| siliconpotato wrote:
| There are better articles explaining this:
| https://www.forbes.com/sites/petercohan/2025/11/25/metas-ai-...
| and https://www.wsj.com/tech/meta-ai-data-center-
| finances-d3a6b4...
| skybrian wrote:
| The Forbes article says that "to be an operating lease [...]
| Meta must have the obligation to absorb the venture's losses or
| the right to receive its benefits."
|
| I don't know enough about finance to tell for sure, but this
| seems backwards?
| gorgoiler wrote:
| It's buried in the article but this about a debt vehicle created
| to finance a "2.064 GW hyperscale data center campus". That's
| approximately equivalent to a One-Third-Gorges Dam (one tenth of
| the Three Gorges Dam.)
|
| Downstream of the capex to build the data centre is, presumably,
| a sister capex to build a power station. At what stage do these
| come hand in hand? Or does this financing include provisions to
| pay the electricity bills for the next ten years which, in turn,
| gets used by the power company to finance the construction of a
| new power plant? The power company gets some kind of heads up?
|
| If I finance the construction of a mile long dinner table due for
| late November 2026, presumably some of that had to trickle down
| into a local turkey farm, lest everyone go hungry?
| clipsy wrote:
| > One-Third-Gorges Dam (one tenth of the Three Gorges Dam.)
|
| Pedantically, that's one ninth of the Three Gorges Dam. One
| tenth would be the 0.3 Gorges Dam.
| loeg wrote:
| > Or does this financing include provisions to pay the
| electricity bills for the next ten years which, in turn, gets
| used by the power company to finance the construction of a new
| power plant? The power company gets some kind of heads up?
|
| Mostly things like this, yeah. The hyperscalers don't want to
| get into the power business.
| cyanydeez wrote:
| They also need artificial demand to keep the valuations of
| their data centers high, so generating multiple business
| interests creating wash trading benefits their interests.
| underlipton wrote:
| Of course not. We're eating roast beast. (I'm saying that the
| entire endeavor is a fairy tale that we're misguidedly bringing
| into live-action.)
| shrubble wrote:
| Monroe LA is the former headquarters of Lumen, they realized that
| their corporate headquarters was a white elephant and donated it
| to the local university I think. However that means there is
| available power capacity from the local power company and of
| course, fair amounts of fiber optic cable nearby.
| turtlesdown11 wrote:
| remember that time Facebook spent $10s of billions on the
| metaverse?
| loeg wrote:
| They continue to spend $4B/quarter on this as of 2025Q3
| financials.
| hrimfaxi wrote:
| What's your point with this comment? How can we ever hope for
| another Bell Labs if we decry companies taking risks on things
| no one even asked for?
| turtlesdown11 wrote:
| how could we ever deserve another juicero or quibi, right?
| Hamuko wrote:
| Meta (which is short for the metaverse btw) occasionally
| remembers the metaverse existing, too, whenever there's a small
| break to be had from the AI stuff.
|
| https://bsky.app/profile/mailia.bsky.social/post/3lwys6d6r6s...
| loeg wrote:
| Levine wrote about this here:
| https://www.bloomberg.com/opinion/newsletters/2025-10-29/put... .
| daemonologist wrote:
| It seems to me that the lengthiness and opacity of the report is
| part of the joke, and therefore running it through ChatGPT kind
| of misses the point. (The "FSG analyst" would have intentionally
| spread a layer of BS on top of everything to make it a lot of
| extra work to understand that the debt should actually be on
| Meta's books. Of course it's satirical so it calls out its own
| absurdity instead of actually burying it.)
|
| As has been mentioned though if you purely want the info there
| are more succinct articles out there, e.g.:
| https://www.forbes.com/sites/petercohan/2025/11/25/metas-ai-...
| kuberwastaken wrote:
| Soo they just borrowed money from themselves to pay for their
| data center? Nice.
| loeg wrote:
| No, the capital comes from someone else. IIUC, private credit.
| skizm wrote:
| Serious questions: won't banks and ratings agencies simply treat
| this as Meta's debt since it it effectively Meta's debt? What
| changes if this was on their "official balance sheet"? How does
| playing with the wording actually help Meta overall?
| ryukoposting wrote:
| The crux of this article is that they won't treat Meta's debt
| as debt, because Meta intentionally structured this debt to
| circumvent the agencies' definition of "debt." Should they
| change their definition of "debt?" Maybe, but what incentive do
| they have to do that, is _any_ formal definition bulletproof to
| circumvention, etc.
|
| What's very interesting to me is what happens when Meta doesn't
| exercise those lease options. If there isn't some kind of
| penalty for declining the option, well...
| cyanydeez wrote:
| As in the 2008 crash, the ratings agencies were disincentivized
| to accurately rate these vehicles because they were
| superficially masked and paid by the companies asking them for
| ratings.
| a-dub wrote:
| even a really strong shot of cafe bustelo failed to make this an
| interesting read.
| sega_sai wrote:
| This have been covered by FT a while ago:
| https://archive.ph/zs7ul (
| https://www.ft.com/content/d0344253-b0a2-4c6d-8b97-520243678... )
| skybrian wrote:
| A quote from The Information via Matt Levine:
|
| > The bonds for the Hyperion data center priced with a coupon of
| almost 6.6%, roughly a percentage point higher than Meta's
| outstanding corporate bonds and in line with the average junk
| bond. That's a higher yield than investors would expect given
| that S&P rated the Hyperion bonds A+, safely within the
| investment-grade spectrum.
|
| Apparently the bond market is pricing the guarantees made by Meta
| to this other entity as not quite as good as bonds that Meta
| issues itself, and Meta is willing to pay the higher interest
| rate. So, not entirely a free lunch?
|
| I guess sometimes a company wants to issue junk bonds and its
| rating gets in the way.
| jbs789 wrote:
| If the article is correct and they are 144A then they will also
| be a little less liquid. But yeah, I have to imagine everyone
| involved knows what's up. Just happens to work for everyone
| (for now).
| mrandish wrote:
| It would be deeply ironic if this data center (or similar ones
| using creative accounting), are among those featured in the TV
| commercials Meta has been running in expensive national prime
| time slots in recent weeks.
|
| I've seen at least two different commercials each focused
| entirely on the personal story of a relatable, folksy person
| living in a small town in a fly-over U.S. state, talking about
| how the town was declining and times were hard - then Meta built
| a new data center nearby and this person along with many others
| got jobs there and now things are great. They are very well-
| produced with cinematic shots of rustic small-town main streets,
| dusty pickup trucks in rural settings and local high school
| football games. Aside from the obvious brand-washing, it would be
| extra on-brand if it turns out Meta doesn't even own the data
| center but still tries to take credit for it.
| swatcoder wrote:
| I was sure you were exaggerating. But no!
|
| https://www.youtube.com/watch?v=xCVkA1xebrQ
|
| It turns out the one in this ad is in Altoona, Iowa. The ad
| focuses on how it revitalized the community by providing jobs,
| kind of glossing over how that might be reflected in the
| massive facility's ~30 car parking lot.
|
| And incidentally, that data center currently shows no open
| positions on Meta's career website, although third-party sites
| still have some dated listing for advanced IT positions that
| were probably filled by non-locals.
|
| Ugh.
| michaelt wrote:
| _> Meta built a new data center nearby and this person along
| with many others got jobs there and now things are great._
|
| Creating such bustling workplaces as
| https://maps.app.goo.gl/fc9AGtsVwiLA1vd88
| https://maps.app.goo.gl/fHvTWK4rWqrsqsmr9
| https://maps.app.goo.gl/RzggPfd3xbBQbdoo6 and
| https://maps.app.goo.gl/MBjun6ad4zJmmrRV7
|
| These facilities will sometimes employ as many as 100 people -
| so a state that can attract three such data centres creates
| almost as many new jobs as an entire wal-mart store. Truly, a
| transformative number of jobs.
| almog wrote:
| While I've seen a lot of news lately about SPVs being used to
| finance data centers off balance, as a non-economist I just
| cannot wrap my mind around the problem of issuing a 25Y bonds
| that is tied to purchase of GPUs that have so far proven to be
| replaced by a new generation every 2-5 years. Assuming that Meta
| (or any other company for that follow this structure) extend the
| lease in 4 years, they'll likely want to use newer GPUs, the LLC
| that owns the data center will have to issue new debt, both to
| buy the GPUs but also to serve the older debt and so forth. To me
| it seems that for this to not crumble eventually, the company
| that leases the GPU (Meta in this case) must either: 1. Be able
| generate generate profit that converges to a sum which exceeds
| the debt issued + coupons. 2. Be able to sell those GPUs for
| profit (can't really see that happening unless a real supply
| crisis hit the chip industry).
|
| I'm most likely wrong but the choice of tying a bonds with long
| duration to an asset that rapidly depreciates in value seems to
| me like something that is likely to fail in some way or another.
| jrflowers wrote:
| HN commenters flustered, baffled by the words on the screen: "Why
| would he say it like that? The phrasing is so foreign, it's like
| the author _wants_ me to laugh at it. The only way to understand
| this is to ask a chat bot what I should think the point is"
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