Off-Balance Sheet AI: How SPVs Are Financing the Data Center Boom While Hiding Leverage

Published:
Random Notes
by Ernest Chiang

Post Title Image (Photo by Ray Hennessy on Unsplash)

✳️ tl;dr

  • Meta completed nearly $300 billion in financing through SPV structure
  • Building the Hyperion data center in Louisiana, setting a record for the largest private equity transaction in history 1
  • Hyperion data center covers 4 million square feet,
  • When fully operational, it will consume 5 gigawatts of electricity, equivalent to the power consumption of 4 million American households
  • Meta retains only 20% equity yet maintains full operational control,
  • This “control without consolidation” accounting technique keeps $270 billion in debt off the balance sheet 2
  • Equity accounts for only 8.5% of total financing ($2.5 billion/$29.5 billion)
  • Insurance companies invest heavily in such projects through private credit,
  • But face asset-liability mismatch risks and may be forced to liquidate investments during economic downturns 3
  • Historical lesson: In the 1990s, telecom companies laid 80 million miles of fiber optic cables,
  • Four years after the bubble burst, 85%-95% remained unused, earning the nickname “dark fiber” 4
  • Meta, Amazon, Google, Microsoft committed to a record $320 billion in capital expenditure this year, mostly for AI infrastructure, yet Meta’s 10-K admits: “there can be no assurance that the usage of AI will enhance our products or services” 5
  • Power infrastructure becomes one of the bottlenecks
  • Grid Strategies estimates data centers will need an additional 60 gigawatts of electricity by 2030, equivalent to Italy’s national peak demand 6
  • Cooling technology is also crucial: from air cooling to direct liquid cooling to immersion cooling, affecting long-term operating costs 7
  • Morgan Stanley serves as the exclusive underwriter, while also providing financing advisory for multiple similar projects 1
  • Bonds are issued in 144A format private placement, with a spread of 225 basis points above Treasury bonds 1
  • What can technology managers do? (1) Quantify the actual ROI timeline for AI investments (2) Assess power supply chain risks (3) Maintain appropriate financial leverage ratios

8 9

✳️ Knowledge Graph

(More about Knowledge Graph…)

%%{init: {'theme':'default'}}%%
graph LR
    Meta[Meta Platforms]:::instance
    SPV[Special Purpose Vehicle]:::concept
    BlueOwl[Blue Owl Capital]:::instance
    PIMCO[PIMCO]:::instance
    MorganStanley[Morgan Stanley]:::instance

    Hyperion[Hyperion Data Center]:::instance
    AIInfra[AI Infrastructure]:::concept
    DataCenter[Data Center]:::concept
    GPU[GPU Clusters]:::concept

    PrivateEquity[Private Equity]:::concept
    DebtFinancing[Debt Financing]:::concept
    EquityFinancing[Equity Financing]:::concept
    OffBalanceSheet[Off-Balance-Sheet Financing]:::concept

    CreditRisk[Credit Risk]:::concept
    Leverage[Financial Leverage]:::concept
    AssetLiability[Asset-Liability Mismatch]:::concept
    Opaque[Opaque Risk]:::concept

    InsuranceCo[Insurance Companies]:::concept
    RatingAgency[Rating Agencies]:::concept
    InvestmentGrade[Investment Grade Bonds]:::concept

    Power[Power Infrastructure]:::concept
    Entergy[Entergy]:::instance
    Gigawatt[5 Gigawatt Consumption]:::instance

    DotCom[Dot-com Bubble]:::instance
    Telecom[Telecom Fiber Buildout]:::instance
    GFC[Global Financial Crisis]:::instance

    Meta -->|retains 20% in| SPV
    BlueOwl -->|co-owns| SPV
    PIMCO -->|provides debt to| SPV
    MorganStanley -->|arranges financing for| SPV

    SPV -->|owns| Hyperion
    Meta -->|operates as tenant of| Hyperion
    Hyperion -->|supports| AIInfra
    AIInfra -->|requires| GPU

    PrivateEquity -->|structures| DebtFinancing
    PrivateEquity -->|structures| EquityFinancing
    DebtFinancing -->|funds| SPV
    EquityFinancing -->|funds| SPV

    SPV -->|enables| OffBalanceSheet
    OffBalanceSheet -->|hides| Leverage
    Leverage -->|amplifies| CreditRisk

    SPV -->|creates| Opaque
    Opaque -->|leads to| CreditRisk
    Leverage -->|causes| AssetLiability

    InsuranceCo -->|invests in| PrivateEquity
    InsuranceCo -->|faces| AssetLiability
    RatingAgency -->|assigns| InvestmentGrade
    InvestmentGrade -->|applies to| SPV

    Hyperion -->|demands| Power
    Entergy -->|supplies| Power
    Hyperion -->|consumes| Gigawatt

    DataCenter -->|parallels| Telecom
    Telecom -->|occurred during| DotCom
    CreditRisk -->|may trigger| GFC

    classDef concept fill:#FF8000,stroke:#CC6600,stroke-width:2px,color:#000
    classDef instance fill:#0080FF,stroke:#0066CC,stroke-width:2px,color:#FFF

%%{init: {'theme':'default'}}%%
graph TD
    Start[Meta needs $30B for Data Center]
    Decision1{Use Traditional Financing?}

    Traditional[Traditional Corporate Debt]
    Impact1[Adds debt to balance sheet]
    Impact2[Hurts credit rating]
    Impact3[Limits future borrowing]

    SPVRoute[Create SPV Structure]
    Setup1[Meta retains 20% equity]
    Setup2[Blue Owl co-owns 80%]
    Setup3[PIMCO provides $27B debt]
    Setup4[Private equity provides $2.5B equity]

    Benefits1[Debt off Meta balance sheet]
    Benefits2[Maintains credit rating]
    Benefits3[Meta still controls operations]

    Risks1[Opaque risk hidden]
    Risks2[High leverage 90% debt]
    Risks3[Insurance companies exposed]

    Outcome[Hyperion Data Center Built]

    Start --> Decision1
    Decision1 -->|Yes| Traditional
    Decision1 -->|No| SPVRoute

    Traditional --> Impact1
    Impact1 --> Impact2
    Impact2 --> Impact3

    SPVRoute --> Setup1
    SPVRoute --> Setup2
    Setup1 --> Setup3
    Setup2 --> Setup4

    Setup3 --> Benefits1
    Setup4 --> Benefits2
    Benefits1 --> Benefits3

    Benefits1 -.->|Hidden| Risks1
    Setup3 -.->|90% debt| Risks2
    Setup4 -.->|Funded by| Risks3

    Benefits3 --> Outcome
    Risks1 -.-> Outcome
    Risks2 -.-> Outcome
    Risks3 -.-> Outcome

    style Start fill:#FFD700,color:#FFF
    style SPVRoute fill:#90EE90,color:#FFF
    style Traditional fill:#FFB6C1,color:#FFF
    style Outcome fill:#87CEEB,color:#FFF
    style Risks1 fill:#FF6347,color:#FFF
    style Risks2 fill:#FF6347,color:#FFF
    style Risks3 fill:#FF6347,color:#FFF

%%{init: {'theme':'default'}}%%
graph TB
    Total[Total Financing: $29.5B]

    Equity[Equity: $2.5B - 8.5%]
    Debt[Debt: $27B - 91.5%]

    MetaEquity[Meta Equity: $0.5B - 20% ownership]
    BlueOwlEquity[Blue Owl Equity: $2B - 80% ownership]

    PIMCODebt[PIMCO Senior Debt: $27B+]
    OtherDebt[Other Investors: allocation]

    Terms[Bond Terms]
    Term1[Maturity: 2049 - 24 years]
    Term2[Fully Amortizing]
    Term3[Spread: +225 bps vs Treasury]
    Term4[Rating: A+ by S&P]
    Term5[Format: 144A private placement]

    Total --> Equity
    Total --> Debt

    Equity --> MetaEquity
    Equity --> BlueOwlEquity

    Debt --> PIMCODebt
    Debt --> OtherDebt

    Debt --> Terms
    Terms --> Term1
    Terms --> Term2
    Terms --> Term3
    Terms --> Term4
    Terms --> Term5

    style Total fill:#4169E1,color:#FFF
    style Equity fill:#32CD32,color:#FFF
    style Debt fill:#FF6347,color:#FFF
    style MetaEquity fill:#87CEEB,color:#FFF
    style BlueOwlEquity fill:#87CEEB,color:#FFF
    style Terms fill:#FFD700,color:#FFF

%%{init: {'theme':'default'}}%%
graph LR
    Tech[Tech Companies Need AI Infra]
    Capital[Massive Capital Requirement]

    SPVCreate[Create SPV Structure]
    OffBalance[Keep Debt Off Balance Sheet]

    PE[Private Equity Seeks Yield]
    Insurance[Insurance Co Provides Capital]

    HighYield[Lend at Higher Rates]
    LowRisk[To Investment Grade Companies]

    Hidden[Risk Appears Low]
    Actual[But Actual Risk is High]

    Overbuild[Signal to Overbuild]
    ThinCushion[Only 8.5% Equity Cushion]

    Mismatch[Asset-Liability Mismatch]
    Concentration[Concentration in AI Data Centers]

    Bubble[Potential Bubble Formation]
    Trigger[If AI ROI Disappoints]
    Crisis[Cascade of Defaults]

    Tech --> Capital
    Capital --> SPVCreate
    SPVCreate --> OffBalance

    PE --> Insurance
    Insurance --> HighYield
    HighYield --> LowRisk

    LowRisk --> Hidden
    Hidden -.-> Actual

    Capital --> Overbuild
    SPVCreate --> ThinCushion

    Insurance --> Mismatch
    PE --> Concentration

    Overbuild --> Bubble
    ThinCushion --> Bubble
    Mismatch --> Bubble
    Concentration --> Bubble

    Bubble -.->|If| Trigger
    Trigger -.->|Leads to| Crisis

    style Tech fill:#87CEEB,color:#FFF
    style SPVCreate fill:#90EE90,color:#FFF
    style Actual fill:#FF6347,color:#FFF
    style Bubble fill:#FFA500,color:#FFF
    style Crisis fill:#8B0000,color:#FFF

%%{init: {'theme':'default'}}%%
graph TD
    Timeline[Historical Comparison]

    Era1[Dot-com Era 1998-2001]
    Telecom1[Telecom Companies]
    Telecom2[Massive Fiber Buildout]
    Telecom3[Overinvestment in Infrastructure]
    Telecom4[Speculation on Internet Growth]

    Collapse1[2001-2002 Telecom Crash]
    Loss1[Billions in Write-offs]
    Bankrupt1[Multiple Bankruptcies]

    Era2[AI Era 2023-2025]
    AI1[Tech Giants and Hyperscalers]
    AI2[Massive Data Center Buildout]
    AI3[Overinvestment in AI Infrastructure]
    AI4[Speculation on AI Adoption]

    Current[Current Status 2025]
    Spend1[AI Spending > Telecom Peak]
    Spend2[Thin Equity Cushions]
    Spend3[Off-Balance Sheet Structures]

    Question[Future Unknown]
    Path1[AI ROI Materializes]
    Path2[AI ROI Disappoints]

    Success[Infrastructure Pays Off]
    Failure[Potential Crisis]

    Timeline --> Era1
    Timeline --> Era2

    Era1 --> Telecom1
    Telecom1 --> Telecom2
    Telecom2 --> Telecom3
    Telecom3 --> Telecom4
    Telecom4 --> Collapse1
    Collapse1 --> Loss1
    Collapse1 --> Bankrupt1

    Era2 --> AI1
    AI1 --> AI2
    AI2 --> AI3
    AI3 --> AI4
    AI4 --> Current

    Current --> Spend1
    Current --> Spend2
    Current --> Spend3

    Current --> Question
    Question -.->|Scenario A| Path1
    Question -.->|Scenario B| Path2

    Path1 --> Success
    Path2 --> Failure

    style Era1 fill:#DDA0DD,color:#FFF
    style Collapse1 fill:#8B0000,color:#FFF
    style Era2 fill:#87CEEB,color:#FFF
    style Question fill:#FFD700,color:#FFF
    style Success fill:#90EE90,color:#FFF
    style Failure fill:#FF6347,color:#FFF

✳️ Further Reading

  1. https://www.reuters.com/legal/transactional/meta-set-clinch-nearly-30-billion-financing-deal-louisiana-data-center-site-2025-10-16/ ↩︎ ↩︎ ↩︎

  2. https://paulkedrosky.com/weekend-reading-plus-spvs-meta-and-fiber-buildout-2-0/ ↩︎

  3. https://gfmag.com/insurance/private-equitys-growing-role-in-insurance-rewards-and-risks/ ↩︎

  4. https://fortune.com/2025/09/28/ai-dot-com-bubble-parallels-history-explained-companies-revenue-infrastructure/ ↩︎

  5. https://www.axios.com/2025/09/25/nvidia-openai-data-center-boom ↩︎

  6. https://www.cnbc.com/2025/10/17/ai-data-center-openai-gas-nuclear-renewable-utility.html ↩︎

  7. https://www.deloitte.com/us/en/insights/industry/power-and-utilities/data-center-infrastructure-artificial-intelligence.html ↩︎

  8. https://www.fabricatedknowledge.com/p/lessons-from-history-the-rise-and ↩︎

  9. https://www.datacenterfrontier.com/hyperscale/article/55131851/in-ai-arms-race-data-centers-are-the-table-stakes-for-hyperscale-players ↩︎