It is reported that as the CEO of chip manufacturer Broadcom (Broadcom), Chen Fuyang spent nearly two months attempting to get banks to commit to providing over $40 billion in funding for the largest AI debt financing transaction in history. This deal is aimed at helping Anthropic to lease specialized chips jointly developed by Broadcom and Google.
Although Anthropic is the main beneficiary of this transaction, this startup company needs larger business partners to assist with fundraising. Anthropic is working together with Broadcom, hoping to complete this transaction before its much-anticipated IPO submits its application.
As a supplier of Anthropic chips, Broadcom plays a central role in this financing initiative. With its excellent credit rating, Broadcom has previously agreed to provide some financial guarantees to alleviate the concerns of banks regarding the significant risks involved in issuing loans exceeding $40 billion. However, sources familiar with the matter indicate that in the past few weeks, some banks have become increasingly uneasy about participating in this transaction, which is known as the 'Polaris Project' ( Project North Star ).
According to these informed sources, considering the rising interest rates and the increasingly difficult financing environment for AI startups, some banks believe that the rewards for taking on these risks are not sufficient, and therefore are considering withdrawing completely from this transaction.
According to informed sources, in the end, Broadcom CEO engaged in final negotiations with bank executives over the weekend to secure their financing commitments for this deal; at the same time, Broadcom also agreed to raise the loan interest rates.
Informed sources also stated that banks are more confident in the guarantees provided by Broadcom. If Anthropic fails to repay the loan, these guarantees will protect the banks from losses. This transaction, led by Bank of America ( Bank of America ), Citigroup ( Citigroup ), and Morgan Stanley ( Morgan Stanley ), was announced on Monday evening, following the release of Anthropic's IPO application documents. Another debt financing round brought the total financing commitment to $63 billion, with some of the funds provided by Blackstone Group ( Blackstone ).
Broadcom played multiple roles in this transaction, including supplier, guarantor, and negotiator. Its own involvement in mediating the deal also reflects the closely interwoven nature of the massive AI bets being placed in the current restructuring of the macroeconomic landscape, as well as the extremely high risk exposure faced by all participants.
Startups like Anthropic and OpenAI need a large number of chips to power their AI models, but they are unable to purchase all the required chips on their own. For this reason, Broadcom and other intermediaries are helping them raise substantial funds. However, even with this support, the fundraising environment for AI is becoming increasingly difficult.
Banks and other investors hope to limit their exposure to AI risks, as some believe that there are signs of a financial bubble emerging in this industry. Rising interest rates have also increased the difficulty of raising funds, giving lending institutions the upper hand in selecting which transactions to finance.
In the 'Polaris Project', a shell company will borrow $63 billion to purchase chips designed by Broadcom and Google, known as Tensor Processing Units. The rent paid by Anthropic will be used to repay the loan, while Broadcom will provide a guarantee for the lender to recover their funds thanks to its strong financial strength. Since the borrower is this shell company, Broadcom only assumes risk when Anthropic is unable to make payments.
This $63 billion deal is not only unprecedented in scale but also of historical significance in several other aspects. Banks that usually compete with each other, as well as private credit institutions like Blackstone Group, have chosen to join forces in this largest AI infrastructure financing deal ever. These banks also plan to distribute about half of the debt they hold, which amounts to approximately $22 billion, to investors in the investment-grade bond market, a market that can be considered one of the deepest capital pools in the world.
However, there is a risk here: According to people familiar with the matter, banks are not prepared to sell bonds to fund managers until the relevant chips are delivered later next year. If interest rates rise significantly during this period, and since banks have committed to setting a cap on loan interest rates, they may have to sell these debts at a loss. According to two bank officials close to this transaction, some banks may choose to continue holding these loans rather than selling them at a loss.
In addition, the "Polaris Plan" also involves another $18 billion in debt with a higher risk level, which is not guaranteed by Broadcom. Half of this debt will be financed by Blackstone Group. Although private lending companies, insurance firms, and hedge funds have purchased similar debts in the past year, their willingness to take on risks solely linked to Anthropic may have diminished with the increased volatility in financial markets related to AI.
The "Polaris Project" is a follow-up transaction to another chip financing deal between Anthropic and Broadcom, which was known as the "Great Sky Project" (Big Sky). People familiar with the matter said that Apollo (Apollo) provided some financing for the riskier portion of that deal, but to date, it has not been able to complete some of the transactions to resell the debt to investors.
Against the backdrop of companies like AI competing to build data centers, critics refer to many similar financing arrangements as "circular financing," and the "Polaris Plan" is one of them. Anthropic estimates in its IPO prospectus that the company will pay over $125.2 billion to rent Broadcom chips, while Broadcom and Google have respectively committed to providing $42 billion and $20 billion in financial support to Anthropic.
One of the main difficulties for the transaction handlers in persuading other banks to participate is that the debt market has become 'overloaded' with billions of dollars worth of bonds and loans related to AI. Bond fund managers stated that many banks are still trying to resell the loans they had previously agreed to provide, which limits their ability to issue new loans.
Excessive supply, coupled with growing concerns among investors that certain AI investments may encounter problems, has made it even more difficult to sell these loans. In order to free up capital, some banks are willing to sell their loans at a loss to customers, while others choose to continue holding onto their positions, which in turn limits their ability to conduct new transactions. This dilemma has resulted in some banks being trapped with loan exposures to high-risk entities within the AI ecosystem.
The debt fund manager said that Morgan Stanley has been having difficulty selling a bond with a scale of about $300 million. This bond is backed by a loan provided by the firm for a data center project in Kansas City, which is called the “Lightning Plan” ( Project Blitz ), and is operated by Lambda. Like Coreweave, Lambda is also a “new type of cloud service” startup company that uses borrowed funds to purchase chips, and then rents out the computing power of these chips to AI developers.
The debt fund manager said that although Morgan Stanley has doubled the yield of the “Lightning Plan” bonds, there are still few buyers showing interest.
