Banks are now trying to offload the AI data center debt they just underwrote(startupfortune.com) |
Banks are now trying to offload the AI data center debt they just underwrote(startupfortune.com) |
They hold it to help stabilize the market for it while its being sold and then offload it once the market has been established.
Nothing out of hte ordinary here, but to be fair the original article isnt' a financial site so they would have no real idea about how this work behind the scenes.
This doesn't seem like a story at all given how robust this debt is trading.
That directly contradicts specific points made in the story, about specific Tier 1 banks and specific amounts of debt not finding buyers. And the amount cited isn't all that great, given the overall equity in play.
> Nothing out of hte[sic] ordinary here
Matthew Moniot, Man Group: "the deal sizes involved are 'out of scale to anything we've thought about, ever.'"
Hard to compare your model with his, since he doesn't have one. When quotes from named credit risk guys from named finance organizations sound like angsty Gen Z, it's not ordinary.
In any case, the story is covering something significant. There is an important test occurring, and we're all going to learn the results, sooner or later. It could all turn out fine, but I don't know. I don't believe you really know either.
Sure that could be true, but that has nothing to do with the public debt we're talking about.
Completely different markets.
That's like me saying the condo Market in Miami is hot and you rebutting that single family homes in HOA's in Phoenix are not hot right now.
Both can be true at the same time as they are completely different market that are only very tangentially relate.
[1]: First was a decade ago with RMG (a Canadian monoline lender) and the other two with Scotia, the first of which was a fixed mortgage at purchase, and the second was a refinancing.
Where have I heard this before.
Not to do so would be reckless.
What is unusual about this is that syndications usually clear in a few weeks but this has been stuck in distribution for six months and still not closed.
https://www.economist.com/content-assets/images/20260711_EPC...
Which of course is a valid point to raise, but you should just say "corporate bond issuance is at a all time high", rather than some clickbait headline about how "Banks are now trying to offload the AI data center debt" and it's "out of scale to anything we've thought about, ever."
And it's just one of them: they know that there is about three trillion dollars of this risky shit out there either in the hyperscaler/FAANG balance sheets or off the books and others are reaching the limits of their appetites for it, so they are going to struggle to sell this particular debt, and meanwhile Oracle's position gets worse every day.
We are getting a lot closer to the Margin Call crisis meeting moment where one bank decides it cannot assess the risk of their share of it, are we not?
But this time it is happening in a world where retail investors, lawyers, government officials, elected representatives are much more likely to have seen Margin Call and The Big Short.
Everyone knows these loans are dogshit but if anyone moves first to say so then everyone else’s loans basically are screwed too. So everyone is incentivized to pretend like there’s no problem even though everyone knows there’s a problem.
1. they are one place above junk;
2. they are being treated as effectively junk;
3. if they get classified as junk, any pension portfolios holding Oracle stock must sell as they can't hold junk stocks.
If that happens then there will be a cascade of effects. Not just in the AI/datacentre sector but elsewhere, as Larry Ellison holds a stake in Paramount/helped finance the Paramount/WB merger.
[1] https://www.youtube.com/watch?v=rHaPfdnRoZ4 -- Mostly Economics Podcast #55: Who pays when the AI bubble bursts with Ed Zitron (12:36 - 23:53)
I personally think it's all hugely overcomplicating things but that's the way modern world works.
(until it every now and then, on regular intervals, doesn't:)
This is common. Selling debt is normal. If there is money to be made by selling the debt and going back to issuing more loans, they’ll try to find a buyer.
Everyone is so primed to believe that all things related to data centers are bad that they’ll assume this is a special event. The person writing the headline knows that.
Cooling is usually what kills you with server gear at home. I don't have a cold aisle, or a case that flows that much air. Can I water cool it enough?
No video outputs would probably be my biggest annoyance. It should be fine at headlessly rendering games for streaming though, as well as AI.
If there's a will, there's usually a way.
I'd much rather be in the recovery/asset remarketing market rather than the primary/reseller one when this thing pops, for sure.
PETER SULLIVAN: We have to hold these assets on our books longer than we might ideally like to.
JOHN TULD: Yes.
JARED: Sell it all. Today.
JOHN: Is that even possible, Sam?
SAM: Yes. But at what cost?
Is it a data center with nothing but GPUs, that does nothing but inference all day and all night?
Is it a data center custom-built for only AI companies to use?
Do these “AI Data Centers” have data storage? VPS? …
Or, as I suspect, is “AI Data Center” simply a fake media buzzword that really means “Normal Data Centers” but with political baggage and stigma built-in.
It's a different build-out to a data centre that can host video/YouTube content (fast CPU, no GPU, large number/size of hard drives), or that can run web servers (fast CPUs, low to average hard drive capacity).
> Tech companies raised $23 billion in AI-related debt globally in September, less than half the amount raised in August, according to Morgan Stanley data covering public bonds and private placement transactions.
> The decline marks a continued drop from June, when companies raised a record $113 billion for AI infrastructure including data centers and chips. In the US investment-grade market, where blue-chip tech groups borrowed around $306 billion between January and August, AI-related bond issuance stopped completely last month.
0: https://www.investing.com/news/stock-market-news/tech-compan...
'nuff said.
Did you mean CDS? As your sentence doens't make sense as its written.
But the debt we are talking about is not Private credit debt, its completely different animal with far different risk characteristics
what do I mean by that? oracle is publicly traded, which means they (should) report profit loss and other key metrics in a standardised way. This means that one company's metrics should be comparable to others. Their value is assessed by the second on a public market. This means that anything that affects thier value (real or imagined) is reflected almost instantly. (same goes for debt)
Private credit, and the stuff its invested in, is much murkier. THey do not have the same public reporting rules. There is no testing of value. Its in the interest of the owner of that debt to talk up the value of the assets they hold.
This means that a fund might invest in 10 companies. Those companies might be doing well, or they might not. Because information is limited, and there are no public trades, the value of those companies are only ever tested at sale, or in a crisis. (ie they fold, or do something so public that they can't avoid the consequences.)
THe problem then is that because information is limited (was it a one off, did the owner hide the problem, did they use the wrong investment strategey, is the rest of the portfolio also over valued by 10x?) causes people to panic, and withdraw money.
Because private credit is not that liquid, it means that if people withdraw too much money, they either have to say "no we have no free cash" (lehman brothers insolvancy), they have to take out bridging loans (expensive and very short term) or sell assets (fire sales rarely get good value and shrink the credit supply)
All of which causes a panic, and people look at places like softbank, see the leverage and think "oh fuck thats not worth anything" and the bubble pops.
The giant Republican wishlist bill from the beginning of Trump's term has relaxed the Enhanced Supplementary Leverage Ratio, one of several related rules on very big banks that deter them taking on "too much" risk.
Sure. Sometimes they cause global financial crises as part of that process.
[0] https://en.wikipedia.org/wiki/Tulip_mania [1] https://nvidianews.nvidia.com/news/nvidia-partners-with-apol...
Loans are sold off, which means that they can raise more money to make loans. Each time you do that, you create more money out of thin air, which is profit.
The problem is, it only works if everyone believes.
THe problem with 2008 is that people stopped believing and demanded banks settle immediately. which then meant that they needed to raise cash, which meant looking at their assets, which meant looking at the risks of those assets, and then it went to shit.
>We lent £1,000 to John Sozzleby at 10%. We quantify the risk level as “iffy”, which is 42.6 qualm points above "dodgy". and are willing to sell you the debt for £700. its a great deal!
Lots of names to obfuscate the same financial yada yada.
... and from the linked piece ...
| Banks do not sell down debt they are confident in
... I have no claim to expertise but both of these can't be true.
I wouldn't worry about it anyway, you can be sure when the day comes "they'll be to big to fail".
/s
Which is why I hate when people criticize some obviously overvalued shit, and the response is "why don't you short it".
Sometimes the best way to be safe of something about to explode is to just get away from it.
When the debt in 2007 sucked, it crashed the economy. But when the price was good in 2006, everyone celebrated.
Note: prices are getting worse for bonds today but nothing panic worthy yet.
I am panicking a bit TBH
Modern finance is basically a collaborative fiction. Its fine so long as everyone buys into the same narrative. As soon as someone says "no, why?" the whole thing falls of the rails.
I agree with JPM that now is a good time to invest in public debt.
Those should really eat a lot of shit if any of the two ai companies stops buying everything no matter the price.
And the key point of it is not "larger than ever" but "out of scale"?
I'm chastising the author of the article, for the "Banks are now trying to offload..." framing, not the commenter. Hopefully the fact that I was commenting about the headline made this clear.
>And the key point of it is not "larger than ever" but "out of scale"?
Isn't that "larger than ever" but with more exclamation points?
(At least is the way I read it: not just large but abnormal in context)
(Can't remember, is it this Texas one?)
ETA: This whole Oracle bit is really the area of Zitron's predictions that is the least contentious: he called things, they are happening.
The big question is to what extent this is a harbinger of bad things. In a less crazy market where the value of enterprise-software-backed consultancy is stable or growing, you can imagine people lining up to bite off chunks from the carcass of a failed Oracle. But is the value of enterprise software even stable? Aren't many of the possible buyers also overextending themselves?
Wouldn't hedge funds or PE recognize this arbitrage opportunity and eat this up, making this a non-issue? Vastly simplifying this: suppose "junk bond" means the chance of default is greater or equal to 10%. Of course it's bad if the risk of oracle going bankrupt edges up from 9% to 10.1%, but we shouldn't expect pandemonium from the 10% cliff edge, because there's plenty to be made by selling all the bonds that pension funds are obligated to sell, because now they have higher yields (yields move inverse to bond prices).
(Sincere, not rhetorical questions)
I guess, maybe, but perhaps the risk that GP is commenting on is that it could be it's own form of Juicing.
I do sincerely doubt, even with the big shifts that AI enables to have companies 'move away' from Oracle, that Oracle will default.
On the other hand, There's still an elevated chance of decline.
IOW, Those stocks might move from pension type plans to different baskets as a result, however there is a non-negligible risk of some (not total!) loss in the 5-10 year term.
Will add, I would -hope- that the same pension rules around selling questionable stocks, would also have rules limiting what level of exploitation is possible.
Some originators will hold on to servicing of your debt wherever it goes (within certain boundaries, e.x. if you go into a delinquency or reconciled delinquency state).
Those originators use it as a selling point, because many people have gotten bit by servicer flips one way or another.
What I mean is parent companies and contracts that might obfuscate who's owed the debt.
However, I don't know anything about debt markets let alone homeownership.
For my part, I do work on machine learning projects at home. But I'm nowhere near operating at a scale where datacenter GPU features like being optimized for 4- and 8-bit calculations would be a net benefit. Nor do I have any particular desire to have one of those things making my home office sound like I live next to a steel mill.
It's not too far off from why I don't have a box truck parked in my garage even though it's technically more capable than my Kia. And on the occasions when that is what I need, the local hardware store will gladly rent one to me for $20 per day.
Yes they use pcie electrically, but its not the same slot shape and there is usually carrier boards
You wouldn’t repurpose these for home gaming, it would still be for llms
You can just mod them to run on consumer fans that are designed to spin much slower but have higher diameter
So, sort of specialized? but not really.
> If there's a will, there's usually a way.
That's the spirit!
This whole subthread is just sad. "Oh no, it's not the same form factor. It is useless".
Where's the "Hacker" in "Hacker News" there.
It's a shame that we need to defer to "China" as a shorthand for "actual engineers" just because our own engineers lack imagination and drive that would validate being given that title in the first place.
There are a lot of reasons other than skill why China is the way it is. Culture and locality are big ones. I don't know a whole lot but I disagree that any "actual engineer" could easily come up with a sustainable business for this stuff in the US -- for example, harvesting and processing used parts for their components is a hugely laborious process, and China has a huge culture of recycling and reworking that simply does not exist in the US (and would largely be socially unacceptable to introduce!). Take for example the pre-modded 4090s, or the BGA desktop motherboards I mentioned, or any number of other products that are based not merely on sheer engineering. It's not exactly engineering on its own that causes these things to happen, but more the fact that nearly anybody can just throw together an operation like that and have tons of workers available to make it sustainable.
Those bits could be sold off to different global consulting firms, I suspect.
(But aren't those global consulting firms also going to be freaked out about their own AI risks? And what does the whole AI-assisted coding thing do to a sober assessment of what all of Oracle's global business is worth? Lots of unanswered questions)
Also that is not the AI data centre bits; those will have to be chopped off and dumped.
If that doesn't seriously spook the markets — a company as well-known and formerly blue-chip as Oracle, needing an international bailout — then it would be kind of surprising.
Oracle is already close to being classified as junk and reaching a tipping point. If/when that happens it is unclear what affect that will have on the markets on companies invested in AI datacenters with Oracle, and other companies that Larry Ellison and other Oracle investors own shares in.
So the worry is that it makes it clear that the unexamined risk in the SPVs has a lot less light shed on it.
I mean yes, there are key contractors for certian things, but depending on the structure they can be chapter 11'd to yeet that debt.
Of course junking all those bonds would cause a crisis.
https://en.wikipedia.org/wiki/Collateralized_debt_obligation
> In the early 2000s, the debt underpinning CDOs was generally diversified, but by 2006–2007—when the CDO market grew to hundreds of billions of dollars—this had changed. CDO collateral became dominated by high risk (BBB or A) tranches recycled from other asset-backed securities, whose assets were usually subprime mortgages. These CDOs have been called "the engine that powered the mortgage supply chain" for subprime mortgages, and are credited with giving lenders greater incentive to make subprime loans, leading to the 2007–2009 subprime mortgage crisis.
It's hard to ignore the similarities.
There is no issue with collateralized debt as long as the risk is properly assessed, the whole point of securitization is that you can take on higher risk for higher reward of an asset that was previously just one single piece of risk.
The nuance here, though, was that the CDOs and similar instruments were sold in a tranched fashion, and the super-senior tranche was made to look as if it was very low risk, as normal for tranches instruments.
But when your entire series of tranches all consists of trash, then which tranche you were in didn't really matter.
CDO and CDO2 instruments hid this distinction really well, and unfortunately the ratings agencies bought into it and sold crap as AAA securities.
What if this winds up being the case for the trillions dumped into AI in hopes of future revenues?
https://www.reuters.com/business/oracle-corp-goes-high-stake...
> Cloud computing giant Oracle Corp is on the cusp of a junk-grade credit rating and its shares have tanked as the artificial intelligence hyperscaler becomes the fall guy of investors' concerns over the sector's debt-fuelled spending binge.
Are these companies worth their incredibly high valuations?
Yeah... maybe think on that a bit in this context.
Inflation's way up. Real wages are down.
https://www.nytimes.com/2026/10/14/business/economy/inflatio...
> Wage growth has remained relatively muted over the past year. That, combined with higher inflation, means Americans are earning less for an hour of work. Average hourly earnings, adjusted for inflation, fell 0.5 percent in September, and were down 0.7 percent from a year earlier. It was the sixth straight month of year-over-year declines in real earnings.
https://www.cbsnews.com/news/household-debt-delinquencies-ri...
> The share of seriously delinquent auto loan balances has hit a record high this year, while nearly 13% of credit card balances are seriously past due — close to their 2010 peak in the aftermath of the housing crisis — according to recent data from the Federal Reserve Bank of New York.
https://www.cnbc.com/2026/10/09/american-debt-delinquency.ht...
> The ability of U.S. families to stay current on their debts worsened over the past three years, hitting levels not seen since the aftermath of the global financial crisis, the Federal Reserve reported Friday.
It feels like each bubble gets bigger.
Well you would expect that given that the market keeps getting bigger and the money in circulation keeps getting bigger.
Inflation alone means each bubble should be bigger than the last all other things being equal.
Please don't misunderstand me as attacking you. I was attacking that other guy further up the thread with the empty GitHub account and the equally empty ambitions, trying to drag all of us crabs back into this bucket we find ourselves in.
Oh, plenty of people do not choose not to -- there are tons of blog posts and YouTube videos out there of people doing stuff exactly like this! It's just the making it sustainable part that's very difficult outside of somewhere like China, because -- unless you have special VC privilege -- you can't really offer reasonable prices to the masses, which makes your purchase volume go down, which further drives your prices up even more, until it converges on some insane number.
The specific problem of the 2008 financial crisis was that the banks were going out of their way to obfuscate the source of their CDOs so that, even when it was clear in 2007 that the subprime mortgage market was unraveling, you couldn't look at your instruments and figure out whether or not you were affected. The problem wasn't the CDO, it was the obfuscation. And as far as I'm aware, the current debt offerings aren't being obfuscated--if you want to avoid the data center debt because you think it's junk, just avoid the stuff being touted as data center debt.
It's very hard to understand something when your salary depends on you not understanding something.
They just kept the music going, more ratings issued was more money for them. Paid by the bank creating the security, what could go wrong
Not sure its just related to centralization, probably more so that information can flow more freely now, but I fully agree.
Where are they getting this data? This directly contradicts their claim:
> Real average hourly earnings for all employees decreased 0.5 percent from August to September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today… From September 2025 to September 2026, real average hourly earnings decreased 0.7 percent, seasonally adjusted.
Your chart appears to be weekly earnings, not per-hour wages. Having to pick up more shifts or a second job to make ends meet supports the point, in my book.
