This article doesn't mention it, but PIMCO is lead lender
"Pacific Investment Management Co. (PIMCO) is the anchor lender on the deal. The debt, which matures in 2049, is fully amortising and has been rated A+ by S&P. The bonds were priced at around 225 basis points over U.S. Treasuries."
Ugh. A year ago, I was (a) fairly confident that the AI bubble would burst, but (b) fairly confident that contagion would be limited; a bunch of startups would evaporate, and some VCs would be badly burned or fail, but the broader economy would largely shrug and carry on.
Based on this sort of thing, I'm not sure I still believe (b).
I am 99.0% percent sure that the AI bubble burst is coming. I was only 95% sure until very recently.
Does this mean that this investment spreads the bubble burst risk into people's pension funds? (those lucky enough to have such a thing) Or, not necessarily?
I would think so. I don't think pension funds are always exactly smart money. They have lot of pressure to make numbers work so they are after anything that sounds reasonably like it will make them work. And that can work until it does not.
Pension funds, banks, etc, are never smart money. They aren’t allowed to be.
They are required to pick based on some defined formula which the various stakeholders signed off on, and hence are prime juicy targets for people trying to game systems.
They also took the ‘08 mortgage crisis right in the shorts, for the same reasons.
This is why all defined benefit pension funds should be eliminated and replaced with defined contribution plans. Pensions are far too systemically risky for employees, employers, and taxpayers alike. The only one who really benefits are the fund managers who get to collect large fees.
Reading the replies, my next question is: How much of say, CALPERS [0], is invested in "AGI by next 2030" or similar. If it's far less than 1%, that seems like a fair bet. Does anyone have a good read on the real number?
The Bloomberg source is more informative with respect to the financing (https://archive.ph/5WGcA)
> Blue Owl Capital Inc. and Meta will split ownership of the Hyperion data center site in Richland Parish, Louisiana, with the tech giant retaining just 20% of it, according to people with knowledge of the matter. To finance the build-out, Morgan Stanley arranged over $27 billion of debt and about $2.5 billion of equity into a special purpose vehicle
At 225 over (current?) treasuries:
> The bonds priced at about 225 basis points over Treasuries,
The sums being thrown around right now are just staggering. All the money that is being leveraged for AI these days is going to absolutely crush some unlucky sods somewhere. All these massive deals can’t all succeed.
Louisiana residents better expect higher energy costs soon as well that’s for sure. No way entergy is content eating the costs of these investments and the state basically has an allergy to taxing or in any way financially inconveniencing companies.
The way things typically go in LA the only guarantee is the residents will be on the losing end in some form or fashion (also many politicians are probably skimming off plenty for themselves and their buddies). Especially with Landry at the helm.
People wanted massive investments in the electric grid. Thanks to AI boom, that's finally happening. Except, they're also going to be massively using the electric grid.
Maybe we'll be blessed by AI companies making money but staying under usage projections. Then, those areas have more power.
Maybe I’m off the mark here but considering the state Facebook was in until AI put some wind back in its sales I would not say 20 years is a safe bet.
Remember how much time and money they burned on Metaverse? They’ve got nothing to show for it. And wasn’t only like 1-2 years ago they stopped publishing DAU’s in favor of a more favorable metric?
Someone feel free to correct me but they seemed to be just dipping their toes into a bit of a house of cards situation just a couple of years ago.
2049... 20 years. So what exactly is being funded? Just the infra? Walls, power grid, cooling, security cameras and such. Or is any part of this the servers? Is there need for more money in say 2039?
The exact value of all 401k isn't really known, but the average account value is estimated at ~135k, if (let's say) 200 million Americans have a 401k, that comes out to 27 trillion.
In that chart, the 18T of IRA has portion in private equity, and the 15T of pension (defined benefit) has a portion in private equity. The 13T defined contribution plans (of which the vast majority is 401k) can't be placed in private equity right now.
Yeah, but I don't think anybody is expecting every single American to take out 100% of their savings from the stock market and put them in private equity.
It's not, but IRA plus 401k is about equal to GDP, yes (and if you add approximately equivalent defined contribution plans like 403b, tsp, etc, then it's more than GDP)
Are the design specifications, like interconnect, GPUs, CPUs, memory and storage of this new cluster public? I seem to recall xAI has made public theirs. I’m mostly asking out of curiosity and a desire to read up on the SOTA hardware specs being used. EDIT: this has some interesting details — https://www.adwaitx.com/meta-prometheus-ai-cluster/
I assume eventually all this investment should result in price drops for cloud GPU rates. Maybe somebody has setup an automated rate aggregator and collected the data? It would be interesting to see the historical data and monitor the changes, like dollars per TFLOP/hr or something standardized to track over time like other economic data or prices.
EDIT: this is along the lines and pretty interesting — https://www.unitedcompute.ai/gpu-price-tracker
I know I’m mixing two different thoughts but they are connected in my head for entrepreneurs interested in starting independent tech/AI/LLM businesses needing heavy compute infrastructure.
The way the recent deals have been structured is that the capacity and thus revenue is pre-booked, which upgrades the credit quality in the eyes of the lenders. Blue Owl is private equity, so they are likely loading the special purpose vehicle itself with the debt (in a way that it off Meta's balance sheet, which is the primary objective), and then possibly funding the capital outlay through secondary markets (if not now, then perhaps later they can bundle it up and sell it - it's Meta adjacent so they will have no problem selling on that debt).
If Blue Owl is providing capital for an equity slice, they get huge leverage on their cut baked into the deal. Pension funds that may end up buying debt in the deal eventually don't want to actually fund the equity of the project and take the risk booting it all up while sitting at the front of the capital stack with corresponding risk of getting wiped out (even if it's a Meta partnership), they simply want securitized fixed income, and make it as vanilla as possible.
So the question is more "will Private Credit (or pension funds/institutions) take debt backed by datacenter collateral with long term service agreements with Meta" and the answer is yes. There is much lower quality stuff than that in the PC space.
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)?
This seems to be a widespread practice lately, so there must be something going on here. Aside from the balance sheet/accounting angle...
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.
If this data center in Richland Parish, Louisiana, is full of obsolete hardware in a few years, do they just wait for the next hurricane, open all the doors and windows, and phone the insurance company with the bad news?
Theoretically, tech companies valuations are based on the notion that the best place for them to invest money is internally, that their internal flywheel is the absolute highest return on capital.
Practically speaking, they also need to build data centers, and real estate has more pedestrian (returns and) valuations, even when it houses fantastical uber tech.
The article is poorly written. This deal is mostly debt financing with only a little bit of equity.
In terms of corporate capital structure, shareholder returns are usually maximized by taking on at least some debt (leverage). The precise optimal proportion of debt depends on several factors, particularly credit rating.
Make the numbers look better? There must be benefits of moving these numbers from column to some other column. Or even partially hiding them. Thus allowing stock to be priced higher based on some metric...
if you have $100M and you need a $1M, you'd use your credit line and borrow $1M and pay it back from interests coming from $100M. it's not that different in corp.
That depends heavily on the terms of the loan you can secure and how you choose to invest the cash.
When you borrow $1M against $100M in cash or assets its generally considered a very low risk loan, meaning you'll likely get good terms and comparatively low rates.
When interest rates were particularly low years ago, we saw a large number of companies issuing bonds and then using the money to just do stock buybacks.
You need to consider secured line of credit vs unsecured and the interest rate is significantly different as one is backed by collateral and the other is not.
> "As we learned in December, Meta has commissioned a new natural gas generator plant to be built by local utility operator Entergy. At least for the initial build out, the gas plant would employ three combined cycle combustion turbine generators with a total generative capacity of over 2.2 gigawatts."
"Pacific Investment Management Co. (PIMCO) is the anchor lender on the deal. The debt, which matures in 2049, is fully amortising and has been rated A+ by S&P. The bonds were priced at around 225 basis points over U.S. Treasuries."
https://pe-insights.com/blue-owl-and-meta-close-record-30bn-...
Oof.. I don't know about this one.