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Bond investors are looking for significantly higher yields on the latest $12bn Meta-backed data centre deal compared with the terms secured just nine months ago, as markets price in higher risks around AI financing.
The nearly one-gigawatt data centre project in El Paso, Texas, is preparing to sell bonds through a special-purpose vehicle owned by BlackRock and offering yields of more than 7 per cent during initial discussions, according to people familiar with the matter.
Some investors are demanding a risk premium of roughly 0.4 percentage points compared to Meta’s previous “Hyperion” data centre deal, which raised $27bn in a record-breaking corporate bond sale last October.
Price discussions were still in the early stages and could change when the deal officially launches as soon as next Monday, the people added.
“When you’re selling tens of billions of bonds, even a 0.1-percentage-point increase in costs would lead to tens of millions of additional interest expenses every year,” said a credit investor focused on investment-grade debt. “It’s very significant in the high-grade market.”
The higher debt costs reflect lenders’ growing wariness of their increasing AI exposure following a borrowing spree led by Big Tech companies in recent months.
It comes alongside a heavy sell-off in AI-linked stocks as equity investors fret about the sustainability of the boom in the sector.
Bonds linked to Meta’s “Hyperion” project in Louisiana — sold through an SPV named Beignet Investor after the state’s characteristic deep-fried pastry — were trading at about 96 cents on the dollar on Thursday.
The new debt will be sold by a vehicle named Sopaipilla Investor after the fried pastry popular in South America. Sopaipilla will hold an 80 per cent stake in the Texas project, with Meta owning the remaining 20 per cent.
“It’s pretty much a carbon copy of its previous deal,” said Viviane Gosselin, an analyst at S&P.
Borrowing from a project entity, rather than by the company itself, has become increasingly popular as tech groups search for ways to keep their balance sheets pristine while raising capital for the AI arms race.
Last month, Anthropic borrowed $35bn through a financing package that is backed by its leases of graphics processing units and a guarantee from Broadcom.
Sopaipilla’s bond, maturing in 2048, is secured by Meta’s 20-year rent payment beginning in 2028. Meta has four renewal options every four years, but it will have to pay a hefty termination fee if it exits the lease early, providing stronger lender protections, according to S&P Global.
Meta is also shouldering the construction risks by paying any cost overruns beyond 105 per cent of the initial budget.
However, there is no direct pledge of physical assets. Meta could also terminate the lease without any penalty if the site suffers from a severe casualty event that causes a project delay of more than 18 months, the rating agency noted in a report.
S&P assigned the notes an A+ rating, one notch below Meta’s AA- rating. “From our standpoint, this is a very robust structure,” said Gosselin. Fitch and KBRA assigned an AA- rating to the deal, the same as Meta’s corporate rating.
BlackRock and Meta declined to comment.
JPMorgan, which is an active bookrunner on the deal, declined to comment. Morgan Stanley, another bookrunner, did not respond to requests for comment.
Additional reporting by Kate Duguid, Eric Platt and Hannah Murphy
