1. On October 16, the Financial Times reported that Anthropic proposed a borrowing rate exceeding 10% to Blackstone.
2. The report sparked widespread market reaction, with observers asking, "Why is a leading AI company borrowing money at junk-bond levels?"
※ Junk bond: Bonds rated BB+ or lower that carry high risk and are typically avoided by institutional investors, more formally referred to as high-yield bonds.
3. However, a closer examination of the deal's structure explains the double-digit interest rate.
4. The transaction, dubbed "Project North Star," is a $60 billion chip-backed financing arrangement.
5. Anthropic is not purchasing the chips directly.
6. Instead, investors lend $60 billion to a special purpose vehicle (SPV).
7. The SPV uses the funds to purchase and own Tensor Processing Units (TPUs).
8. The SPV leases the chips to Anthropic for a five-year term, with Anthropic making regular lease payments.
9. The SPV then uses these lease payments to service the principal and interest owed to investors.
10. For Anthropic, this structure offers the advantage of avoiding massive upfront purchase costs while keeping chip-acquisition expenses off its balance sheet as direct debt.
11. While the headline financial statements may look clean, the company incurs a substantial, mandatory long-term fixed cost over a five-year period.
12. The $60 billion financing is split into $42 billion in senior tranches and $18 billion in subordinated tranches.
13. Broadcom is providing a guarantee for the $42 billion senior tranche.
14. Backed by Broadcom’s guarantee, the $42 billion senior debt is viewed as low-risk, allowing banks to lend at an interest rate of around 6%.
15. Broadcom is the key supplier that designs and delivers TPUs alongside Google.
16. Because suppliers cannot sell chips if their customers lack funding, Broadcom is willing to backstop the deal to secure sales.
17. If Anthropic runs into trouble and fails to make lease payments, Broadcom is required to sell the chips to repay the principal, stepping in to cover any remaining shortfall under its guarantee.
18. Because losses would only occur if a compounding series of failures takes place—Anthropic defaulting, a sharp drop in chip prices, and Broadcom failing to honor its guarantee—the risk is perceived as low.
19. The current market controversy centers on the $18 billion subordinated tranche, of which Blackstone is taking up $9 billion.
20. The $18 billion tranche carries no Broadcom guarantee and ranks behind the $42 billion senior debt, meaning it only gets paid after senior creditors are fully satisfied, resulting in low collateral value.
21. Because this $18 billion subordinated debt relies essentially on Anthropic's standalone creditworthiness, it is deemed high-risk, commanding an interest rate above 10%.
22. Guarantees can generally be categorized into simple guarantees and joint-and-several guarantees.
23. Under a joint-and-several guarantee, the guarantor forfeits certain legal defenses (such as the right of discussion or division) and assumes the exact same liability as the primary debtor.
24. These legal rights allow a guarantor to demand that creditors first exhaust remedies against the primary debtor and pursue the debtor’s assets before coming after the guarantor.
25. Because joint-and-several guarantees lack these protective rights, creditors can demand payment from or seize the assets of either the debtor or the guarantor interchangeably.
26. In Korean legal terms, the guarantee provided by Broadcom in this deal resembles a simple guarantee rather than a joint-and-several guarantee.
27. The structure dictates that creditors must first pursue Anthropic, liquidate the chips if Anthropic collapses, and only look to Broadcom to cover any residual losses.
28. NVIDIA is also reportedly discussing a similar $250 billion support structure with OpenAI for its data centers.
29. As chip vendors increasingly provide financial backing to facilitate sales, a company's guarantee capacity has become a critical competitive edge.
30. Credit rating agencies have assigned Anthropic a BB+ rating.
31. This places the company below investment grade, reflecting a speculative junk credit profile.
32. Furthermore, the underlying TPU collateral is subject to rapid depreciation, making its secondary market value highly uncertain in the event of a forced liquidation.
33. The market effectively views the arrangement as a credit loan extended to a non-investment-grade borrower.
34. In a similar deal executed four months ago, financing was secured at 5.75% for the senior tranche and 8.5% for the subordinated tranche.
35. However, recent sell-offs in CoreWeave corporate bonds and surging U.S. 10-year Treasury yields have pushed subordinated rates past the 10% threshold.
36. Because Anthropic secured the $42 billion senior portion at around 6%, its weighted average borrowing cost remains manageable at approximately 7.4%, even with the 10% rate on the $18 billion subordinated debt.
37. While somewhat costly, this is not dramatically higher than Anthropic's typical borrowing costs.
Editor's Note
The AI race is transforming into a battle of who can secure massive amounts of capital at the lowest cost. Because lease liabilities are only recognized on the balance sheet as leases commence, debt-to-equity ratios can appear artificially understated. This underscores why analysts must look beyond headline financials and closely examine hidden liabilities buried in the footnotes.
Source: Mer's Blog - Looking at the world from a different perspective.
https://blog.naver.com/ranto28
This article has been reorganized from Mer's blog post with the author's consent. All content may contain errors and does not constitute a recommendation to buy or sell securities, nor can it be used as a legal basis for investment decisions.
