The ongoing investment wave in artificial intelligence infrastructure by major technology firms is causing bond markets to assign higher prices to this capital-intensive competition. Meta Platforms, Inc.’s latest $12 billion data center financing shows that investor risk premiums for AI-related debt are clearly rising, with borrowing costs significantly higher compared to its previous transaction nine months ago.
On Friday, sources familiar with the matter told the Financial Times that the bonds, led by BlackRock and used for a nearly one-gigawatt data center project in El Paso, Texas, had an initial yield of over 7% during preliminary discussions. Some investors demanded a risk premium roughly 0.4 percentage points higher than Meta Platforms, Inc.’s "Hyperion" data center deal completed in October last year. The sources added that pricing discussions are still in early stages, with the issuance expected to officially launch as early as next Monday, and final terms may change.
The rising borrowing costs reflect bond markets' increasing wariness of AI financing risks. Meanwhile, AI-concept stocks have recently experienced a significant sell-off, with equity investor doubts about the sustainability of this sector's boom continuing to intensify, creating a resonance between the two markets.
Borrowing Costs Rise as Markets Reprice AI Risks
The cost pressure from this financing carries substantial meaning in the bond market. One credit investor focused on investment-grade debt noted that when you issue tens of billions of dollars in bonds, even a 0.1 percentage point increase in cost results in tens of millions of dollars in additional annual interest expenses, which is highly significant in the high-grade market.
As a reference, Meta Platforms, Inc.’s previous "Hyperion" project bonds completed a record-breaking $27 billion issuance in October. Bonds issued through a special purpose vehicle named "Beignet Investor" linked to that project have since fallen to about 96 cents on the dollar as of Thursday.
Sources pointed out that the rising borrowing costs directly reflect lenders' growing caution about their expanding AI exposure—a caution that is intensifying following the wave of borrowing by tech giants in recent months.
Special Purpose Vehicle Structure Keeps Tech Company Balance Sheets Clean
This financing follows the structural design of Meta Platforms, Inc.’s previous transaction. The bonds will be issued through a special purpose vehicle named "Sopaipilla Investor"—named after a popular South American fried pastry, continuing the naming tradition from the previous "Beignet Investor" deal, which was named after a Louisiana specialty dessert. Sopaipilla will hold an 80% stake in the Texas project, with Meta Platforms, Inc. holding the remaining 20%.
S&P analyst Viviane Gosselin stated that this transaction is "almost a carbon copy of the previous deal."
Borrowing through project entities rather than corporate entities has become a mainstream method for tech companies to raise funds for the AI arms race while keeping their balance sheets clean. Last month, Anthropic completed a $35 billion financing through a plan backed by GPU leases and Broadcom guarantees.
Robust Structural Design with Specific Risk Provisions
Regarding the bond structure, the Sopaipilla-issued bonds will mature in 2048 and are secured by Meta Platforms, Inc.’s rental payments starting in 2028 over a 20-year term. Meta Platforms, Inc. has four renewal options, each for four years, and must pay substantial penalties for early exit, providing strong protection for lenders. Additionally, Meta Platforms, Inc. assumes construction risk and is responsible for cost overruns exceeding 5% above the initial budget.
However, the structure has limitations: the bonds are not directly secured by physical assets. S&P noted in its report that if the project suffers a severe accident causing delays exceeding 18 months, Meta Platforms, Inc. could terminate the lease without incurring any penalties.
In terms of ratings, S&P assigned the bonds an A+ rating, one notch below Meta Platforms, Inc.’s AA- corporate rating. Gosselin commented, "From our perspective, this is a very robust structure." Fitch and KBRA rated the transaction AA-, in line with Meta Platforms, Inc.’s corporate rating.
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