In a strategic move to gain market share in the AI chip sector, Broadcom (AVGO) is leveraging its own creditworthiness, pioneering a novel financing model that ties chipmakers, private credit, and AI computing demand together.
Last week, Broadcom, Apollo Global Management, and Blackstone jointly announced the formation of the "AI XPV Platform." Its inaugural transaction, valued at $35 billion, will finance the expansion of AI startup Anthropic's computing infrastructure by over 1 gigawatt. This stands as one of the largest private credit special purpose vehicle (SPV) deals to date.
However, the core of this deal is Broadcom's previously undisclosed role: it is providing a "deficiency guarantee" for the senior bonds in the transaction. This effectively aligns the credit risk of the senior debt with Broadcom's own, thereby pushing the yield on the two tranches of senior notes down to approximately 5.75%. With $65 billion in debt and only $19.6 billion in cash reserves, Broadcom's financial flexibility pales in comparison to Nvidia's. S&P Global Ratings promptly issued an assessment, noting that this guarantee would have a "mildly negative" impact on Broadcom's credit profile.
Broadcom CEO Hock E. Tan has positioned this collaboration as "the first of many future transactions," with plans to provide over 20 gigawatts of computing financing for leading AI labs through this platform by 2028. If fully realized, the potential chip procurement scale could reach $700 billion, sparking widespread concern about the sustainability of this financing model.
A Three-Tiered Structure: Guarantees Enable Low-Cost Funding
According to media reports citing informed sources, the core vehicle for this transaction is an SPV led by Atlas SP Partners, a subsidiary of Apollo. This entity purchases the chips and leases them to Anthropic, using the lease payments as a source for debt repayment.
The debt is divided into three tiers. In the senior layer, $600 million in A1 notes were sold to banks at a rate of the Treasury yield plus 100 basis points, while $24 billion in A2 notes were sold to institutional investors in the asset-backed credit market at a yield of 5.75%. Buyers included Athene, an insurance subsidiary of Apollo. Both senior tranches received private ratings, placing them in the mid-investment grade range. In the subordinated layer, $4.5 billion in junior notes, which do not carry Broadcom's guarantee, carry a significantly higher yield of 8.5% and were issued at a discount of 98 to 99 cents on the dollar. Additionally, the structured finance arm of Atlas SP Partners provided an $800 million equity layer, becoming the actual holder of the SPV.
The key to the senior bonds' low-cost financing is the "deficiency guarantee" provided by Broadcom: if Anthropic fails to meet its obligations and the proceeds from selling the chips are insufficient to cover principal and interest, Broadcom will cover the losses for A1 and A2 note investors. Reports indicate this dual-trigger mechanism—requiring both an Anthropic default and chip residual values falling below the guarantee threshold—offers Broadcom some protection. Furthermore, as the notes fully amortize over the five-year term, Broadcom's risk exposure gradually declines to zero. In contrast, the cost of capital for the unguaranteed junior debt is roughly double that of the senior layer.
The CEO's Strategic Pivot: From Caution to Commitment
A source familiar with conversations with Broadcom executives revealed that as recently as March of this year, CEO Hock E. Tan was cautious about using Broadcom's balance sheet to provide such guarantees. However, his stance subsequently shifted.
Broadcom turned to Morgan Stanley for assistance in structuring a solution that could advance chip sales while controlling the growth of on-balance-sheet debt, according to a person involved in the deal. Tan's change of heart was driven by practical pressure: Nvidia has already employed similar supplier financing tactics to accelerate chip sales. If Broadcom did not follow suit, it risked falling behind in the AI chip competition.
"We are at a historic inflexion point, where the demand for AI compute is fundamentally reshaping the global economic landscape," Tan stated in last week's announcement, calling the collaboration a "once-in-a-generation opportunity."
Nevertheless, Broadcom's financial situation makes this bet a challenging one. As of May 3, Broadcom carries $65 billion in debt against only $19.6 billion in cash reserves, while Nvidia's free cash flow significantly outpaces Broadcom's. An institutional investor holding Broadcom bonds noted that the primary current question is how the company will account for such guarantee obligations on its balance sheet—while not traditional debt, they must still be recorded as liabilities. Broadcom itself has not commented on this.
Interwoven Interests and Information Asymmetry
The highly interconnected relationships among participants in this transaction have drawn market attention.
Broadcom co-manufactures Tensor Processing Units (TPUs) for Google, Anthropic's primary competitor, while Anthropic is purchasing these very chips through this SPV. Simultaneously, Google's parent company, Alphabet, holds approximately a 14% stake in Anthropic. Morgan Stanley played multiple roles in the deal, acting as Broadcom's financial advisor, leading the transaction arrangement, and also providing loans to participating investors.
According to the Financial Times, some investors bidding for the deal were not given access to Anthropic's financial data before the company formally filed for an IPO. Sources indicated this was the first opportunity for bond investors to place a bet on Anthropic—a company that is currently unprofitable and has not issued corporate bonds before. Furthermore, the debt features a delayed draw structure allowing for funds to be drawn in tranches. While this arrangement helps keep the effective yield low, it also led some investors to opt out of participation.
Trillion-Dollar Capex Drives New Private Financing Landscape
Broadcom's entry into this arena reflects the broader industry context of rapidly ballooning financing needs for AI infrastructure.
Morgan Stanley forecasts that capital market financing for the US AI sector is expected to reach $400 billion, potentially surpassing $1 trillion by 2028 to match an estimated $1.8 trillion in capital expenditure needs over the next two years. Traditional banks are showing clear strain in digesting large-scale AI-related debt, making private credit a crucial alternative channel.
This transaction is not an isolated case. A recent comparable example is Meta's $27.3 billion SPV deal (codenamed "Beignet") centered around its Hyperion data center in Louisiana. It involved private credit from Blue Owl, was arranged by Morgan Stanley, and featured Meta providing a form of credit support that allowed the related bonds to trade in line with Meta's corporate debt pricing. Amazon completed a roughly C$14 billion (approximately $10 billion) issuance in the Canadian bond market, setting a record for the largest single bond deal in Canadian history. Alphabet recently completed one of its largest-ever equity financings, aiming to raise $85 billion to support Google's AI infrastructure build-out.
For Anthropic, this arrangement is its clearest signal yet of a shift towards building its own compute supply, reducing dependence on cloud service providers like Google or Amazon. According to The Information, Anthropic has arranged for Google to guarantee leases for five of its data center facilities, securing the physical space for chip installation. "Whether it's a compute contract or a chip lease," a source familiar with the matter said, "the lease start date is contingent on when the data center is ready."
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