Meta's new round of $12 billion data center financing faces rising financing costs
As the market begins to price in risk premiums for artificial intelligence-related financings, bond investors are demanding a significantly higher yield on Meta's latest $12 billion data center project backing, compared with the conditions under which similar financings were issued nine months ago. According to people familiar with the matter, this data center project in El Paso, Texas, with an installed capacity of nearly 1 gigawatt, plans to pass One of its special purpose vehicles issued bonds. In the initial communication stage, investors require a rate of return of more than 7%. Compared with Meta's previous Hyperion data center financing project, some investors require a risk premium of approximately 0.4 percentage points. In October last year, the Hyperion project completed a US$27 billion corporate bond issuance, setting a record for similar financing. People familiar with the matter added that pricing negotiations are still in the early stages and the terms are still subject to change when the deal is officially launched as early as next Monday. A credit investor who focuses on investment-grade bonds said: "In the context of issuing tens of billions of dollars of bonds, even if the financing cost increases by 0.1 percentage point, tens of millions of dollars of new interest expenses will be added every year. This has a huge impact in the high-rated bond market." The rising cost of debt financing reflects that lenders are increasingly wary of their rising exposure to AI business risks. In recent months, major technology giants have launched a round of financing boom. At the same time, stocks related to the concept of AI have suffered massive sell-offs, and investors in the equity market have begun to worry about whether this industry boom can be sustained. Bonds related to Meta's Hyperion project in Louisiana were issued through a special purpose vehicle called Beignet Investor. On Thursday, the bond was trading at about 96 cents on the dollar. The new debt will be issued by an entity called Sopaipil la Investor, named after sopaipia, a popular fried snack in South America. This entity holds 80% of the equity in the Texas project, and the remaining 20% is held by Meta. S&P analyst Vivian Gosselan said: "The structure of this transaction is almost an exact replica of the previous round of financing." Technology companies are looking for ways to raise funds to enter the AI arms race while keeping their balance sheets tidy, so borrowing through project entities rather than direct debt issuance by parent companies has become increasingly popular. Last month, artificial intelligence company Anthropic completed US$35 billion in financing, relying on a GPU leasing agreement and guaranteed by Broadcom. According to S&P Global, the maturity date of Sopaipilla’s bonds is 2048, and the debt repayment protection comes from Meta’s 20-year rent payment starting in 2028. Meta has four lease renewal options, which can be exercised every four years; however, if the lease is terminated early, a high termination fee will be paid to provide stronger protection for creditors. Meta also bears the construction risk: if the project cost exceeds 105% of the initial budget, Meta will bear the excess. However, there is no direct mortgage of physical assets in this financing. The rating agency reminded in the report: If the site encounters a major accident that delays the project for more than 18 months, Meta can terminate the lease without liquidated damages. S&P gave the bond an A+ rating, one notch lower than Meta's AA- rating. Gosselan said: "In our view, this is a very solid transaction structure." Fitch and KBRA gave the financing an AA- rating, which is the same as Meta's main rating.