Investment in AI infrastructure via off-balance sheet debt is increasing the exposure of insurers and private credit funds to hyperscalers, according to officials at the Bank for International Settlements.
“Alongside traditional bonds, hyperscalers have turned to off‑balance sheet arrangements to finance infrastructure expansions, often in partnership with private credit firms,” BIS officials Egemen Eren, Ingomar Krohn and Karamfil Todorov said in a note Monday. “These structures strengthen links between hyperscalers and non‑bank investors.”
The comments add to warnings about the debt frenzy to support the artificial intelligence revolution. With so many lenders lining up to throw cash at assets, the risk is a bubble that could eventually leave credit players facing substantial pain.
Read more: US Data Center Boom Slows Due to Power Grid Limits, Consultancy Says
Meta Platforms Inc. is among firms popularizing a way for debt to sit completely off balance sheet, allowing enormous sums to be raised while limiting impact on its financial health. Off-balance-sheet debt, through a special purpose vehicle or a joint venture tied to assets like chips or real estate, is becoming the go-to for AI data center deals, bankers say.
Such vehicles’ equity holders are groups of private markets and industry sponsors that raise debt through private placements. The hyperscaler typically holds a minority stake, commiting to long‑term operating leases or capacity offtake agreements.
“These arrangements amount to “shadow borrowing”: obligations that are economically akin to debt but largely reside outside corporate balance sheet,” the BIS note said.
Banks support such off-balance vehicles “with funding lines, potentially creating new shock transmission channels,” the note said. That could leave lenders’ potentially exposed to “refinancing pressures at the vehicle level, procyclical shifts in private credit appetite or the activation of guarantees.”
Building out data center capacity will require hyperscalers to turn to every corner of capital markets, according to JPMorgan Chase & Co.
Photograph: Photo credit: Jason Alden/Bloomberg
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Topics
InsurTech
Data Driven
Artificial Intelligence
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