Comment by loeg
3 months ago
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
Agreed. I know very little about financing but I’d bet if their rating fell that would trigger some debt repayment clause and the house of financial cards might wobble or fall.
…someone needs to shake the tree and see what falls out, like Peter Thiel did for SVB.
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.
> isn’t actually tricking anyone in finance.
Surely the ratings agency people are "in finance"? Or are they in on the game, and sliding their way back to 2008, writing ratings for "deals structured by cows"?
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Is anyone actually limited to only AA+? The usual meaningful separation is investment grade (AAA, AA, A, and maybe BBB) vs junk (everything else). (I don't think Meta would meaningfully lose access to credit if they were downgraded to A.)
Instinctively I try and simplify things. It this was a person with an excellent credit score, it’s as if the person is taking on extra debt to start to create something they need, but trying to hide it.
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Funds and investment vehicles subtly lowering their standards while the downstream investors remain clueless is how we got 2008, no?
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.
Ehh, tell me the credit ratings assigned by rating agencies to mortgage backed securities circa 2005-2007. Its an ecosystem with misaligned incentives, and some cohort of investor will be left holding the bag. Big Tech, investment banks, and ratings agencies will get off with no consequences when this Jenga-esq capital apparatus eventually collapses.
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Investor: Is this your debt, Meta?
Meta: (hiding debt behind its back) No. It's Jimmy's.
Investor: Now Meta, you know lying is wrong.
Meta: No it's not. All the kids do it so it's OK.
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It’s not necessarily lying, but it’s certainly deceptive.
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