Meta CFO: data center financing options span Meta’s balance sheet to fully leased arrangements, company is 'looking at everything'

Meta CFO: data center financing options span Meta’s balance sheet to fully leased arrangements, company is 'looking at everything'

Meta Platforms Inc. has secured $26 billion in debt funding for the construction of a sprawling new data center in Louisiana. The financing, which is being run through a complex arrangement that keeps the debt off Meta's balance sheet, will enable the social media giant to pursue its aggressive push into artificial intelligence (AI) .

The deal, which involves a joint venture to build and own the 4-million-square-foot Hyperion facility, is notable for the inclusion of a special guarantee on the Louisiana complex. If Meta decides to terminate the lease early or opts not to renew it and the value of the data center falls below a pre-determined threshold, the company has agreed to reimburse investors for potential losses. This type of agreement, known as a residual value guarantee, is designed to protect investors from significant losses should the value of the underlying asset sink .

The arrangement is significant because it sets a new precedent for large-scale data center financing. The use of such guarantees in a deal of this size is unprecedented, particularly given the rapid technological advancements that could quickly render AI infrastructure obsolete . The deal also highlights the growing need for specialized financing options to support the construction of massive data centers, as tech companies gather the vast funds required to finance the AI arms race .

Meta's choice of Pacific Investment Management Co. to lead the $26 billion debt financing, following a months-long competition involving some of the biggest asset managers, underscores the complexity and competitiveness of the market for such deals. The bonds are expected to have a tenor of 24 years, including four years for construction before lease payments begin, and are expected to receive investment-grade ratings .

The Hyperion complex is part of a wave of new data-center construction stoked by AI, which will require significant financing. JPMorgan estimates there will be roughly $150 billion of permanent financing needs related to data centers in 2026 and 2027 combined . Before AI, data-center financing was significantly different, with smaller, less capital-intensive structures .

Meta's CFO has indicated that the company is exploring various financing options, including fully leased arrangements, to ensure it has the flexibility to navigate the rapidly evolving AI landscape . This strategic approach reflects the company's commitment to maintaining a strong balance sheet while pursuing its aggressive AI initiatives.

References:
https://www.businesstimes.com.sg/companies-markets/telcos-media-tech/metas-backstop-linchpin-us26-billion-ai-data-centre-deal
https://finance.yahoo.com/news/meta-backstop-linchpin-26-billion-205024203.html
https://m.economictimes.com/tech/artificial-intelligence/metas-backstop-is-linchpin-for-26-billion-ai-data-center-deal/amp_articleshow/123742969.cms