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.
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.
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.
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 ...
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.
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.
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.
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.
>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 is a publicly traded company. If they have an agreement wherein they may have to pay substantial amounts to another company or on behalf of another company, that's a liability and they need to disclose that. Whether it's on their balance sheet doesn't really matter, this is what analysts do, back out these types of financial arrangements from the footnotes and publish thumbs up or thumbs down. People like to say "do your own research" but people should not, in general, do their own research.
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.
To me it reads like the article intentionally pretends two major risks (force majeure and datacenter demand collapse) don't exist, by quipping that "rating agencies historically treat as theoretical inconveniences rather than recurring features of the physical world" for the former and explicitly saying they ignored it for "methodological convenience" for the latter.
If those have been offloaded to the LLC, wouldn't that be a pretty key difference?
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.
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.
>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".
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.
I can't for the life of me figure out who would fund this, other than Saudi oil money or Russian petro-oligarchs, both so they can whitewash or launder their cash. This just makes no sense to me otherwise.
I get what you are saying but this is one of the largest conpanies on the planet asking for what is little more than change for them… it may make just a little sense :)
"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!
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.
If the llc declares bankruptcy does meta have to pay the bank for it - or can they buy the assets at fire sale prices?
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.
My personal experience with LLC loans and banks is that the bank is using the assets as collateral and me as a backstop.
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Meta doesn't actually owe the bank anything in this setup. That would be Blackrock and the other private creditors.
Mechanistically, how would the LLC achieve bankruptcy?
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.
you just... file for bankruptcy like any other person or corporation?
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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... .
So… ‘vanity’ ratings… what’s the point of them then.
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_obligation
1 reply →
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.
7 replies →
Still too verbose. Here's a TL;DR.
Meta is borrowing a whole lot of money and they're lying about it to investors.
No one is lying or deceived here.
9 replies →
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.
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.
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.
Please do say more about this!
What do you want to know? There’s a YouTube of the session.
>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 is a publicly traded company. If they have an agreement wherein they may have to pay substantial amounts to another company or on behalf of another company, that's a liability and they need to disclose that. Whether it's on their balance sheet doesn't really matter, this is what analysts do, back out these types of financial arrangements from the footnotes and publish thumbs up or thumbs down. People like to say "do your own research" but people should not, in general, do their own research.
Thank you, I actually understand what this is all about now.
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.
To me it reads like the article intentionally pretends two major risks (force majeure and datacenter demand collapse) don't exist, by quipping that "rating agencies historically treat as theoretical inconveniences rather than recurring features of the physical world" for the former and explicitly saying they ignored it for "methodological convenience" for the latter.
If those have been offloaded to the LLC, wouldn't that be a pretty key difference?
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.
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.
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.
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.
>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".
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.
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I don't get why Beignet doesn't also hire Meta and pay it to build the DC.
They can get a better interest rate by using a specialty data center lender.
Very useful, ty
Is coreweave a similar situation?
I can't for the life of me figure out who would fund this, other than Saudi oil money or Russian petro-oligarchs, both so they can whitewash or launder their cash. This just makes no sense to me otherwise.
I get what you are saying but this is one of the largest conpanies on the planet asking for what is little more than change for them… it may make just a little sense :)
wow, what a great summary.
reading is really hard. I'm so happy ChatGPT exists
"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!
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!
One year ago was taboo to say you were using LLM to help you code, today is the other way around...
> today is the other way around...
It is definitely not taboo to say you’re writing your own code.
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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.
Yeah... no it's not.
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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.
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