Broadcom plans to raise $100 billion in off-balance-sheet debt; CDS, a key indicator of default risk, hits a new high.

Broadcom plans to raise a massive $100 billion in off-balance-sheet debt, setting a new record for AI financing and targeting Nvidia. However, this "financial engineering" project has triggered a credit panic, causing its CDS to surge to record highs and revealing just the tip of the iceberg of the tech giants' $3 trillion in hidden AI debt, sounding alarm bells in the market.

Broadcom is seeking to issue the largest SPV debt in history through a special purpose vehicle (SPV) in an attempt to seize the AI financing window before regulatory tightening. This off-balance-sheet transaction, amounting to $100 billion, will not only break the record for AI infrastructure financing but also dramatically increase market concerns about the hidden debt risks of tech giants, causing its credit default swaps (CDS) to surge to a record high.

According to Bloomberg, Broadcom is in talks with Blackstone Group and Apollo Global Management to raise over $60 billion in senior secured debt through a special purpose vehicle (SPV) for an AI chip financing deal, with beneficiaries including Anthropic and other companies. Sources familiar with the matter said the financing plan may also include approximately $30 billion in subordinated debt, bringing the total to potentially as high as $100 billion, making it the largest SPV financing deal to date. These sources requested anonymity due to the confidentiality of the information.

Following the announcement, Broadcom's stock price rose more than 1% in after-hours trading. However, the bond and derivatives markets reacted in stark contrast—Broadcom's CDS spreads widened rapidly, hitting a record high. Bloomberg points out that this massive debt transaction will not only fail to alleviate market pressure but may also further transmit credit spreads to other chipmakers and hyperscalers.

Transaction Structure: Off-Balance Sheet Design Reduces Financing Costs

Under the current proposed plan, Broadcom will provide credit backing for a portion of the senior secured debt tranche and issue the debt in the form of a special purpose vehicle (SPV). This arrangement mirrors the first $35 billion debt transaction in Broadcom's previously led "AI XPV Collaboration" platform—Broadcom provided the guarantee, Apollo and Blackstone financed the purchase of custom AI chips, which were then leased to Anthropic, thus granting the senior debt an investment-grade rating and reducing financing costs.

The three parties had previously reached a partnership agreement in June of this year to jointly finance computing infrastructure. According to Bloomberg, the collaborative platform plans to finance over 20 gigawatts of computing power, requiring hundreds of billions of dollars—equivalent to the power generation of approximately 20 nuclear power plants.

The debt will be issued by the SPV, and the vast majority will not appear on either party's balance sheet. This structural arrangement makes it difficult for the market to fully price Broadcom's contingent liabilities, and has made bond investors increasingly wary.

Motives of all parties: Anthropic locks in computing power, Broadcom challenges Nvidia

Behind this transaction, both the buyer and seller have their own demands.

For Anthropic, this AI company is increasingly taking a proactive approach to building computing infrastructure, attempting to secure sufficient computing power for model training and inference by locking in chip resources in advance.

For Broadcom, this move aims to expand its sales of chips and data center equipment, strengthening its competitive position against Nvidia in this lucrative market. Broadcom's CEO stated in March that the company expects AI chip sales to exceed $100 billion next year.

CDS Warning: AI Debt Wave Impacts Credit Market

The surge in CDS (Credit Default Swap) is not an isolated case for Broadcom. According to Bloomberg data, the CDS of hyperscale cloud computing providers is approaching the historical high reached in July of this year. Companies that have recently issued new bonds have all seen a significant increase in CDS, indicating that their default risk is slowly but steadily rising.

Rating agencies have publicly expressed their concerns. Moody's warned in its report that the significant increase in Broadcom's contingent obligations "will limit Broadcom's financial flexibility and could weigh on the company's credit profile, even if its existing debt leverage remains low." S&P Global Ratings characterized the residual support provided by Broadcom as a "contingent liability obligation" and explicitly stated that it would include this portion in its adjusted debt calculations.

DoubleLine portfolio manager Mariya Entina bluntly stated, "It's like exploiting loopholes in the system, trying to get preferential treatment from rating agencies... We're entering the era of financial engineering. When you do financial engineering, you're masking the financial reality."

Brian Gelfand, co-head of global credit at TCW, stated, "This is not typical investment-grade credit underwriting; it's far more complex than that. Given its off-balance-sheet nature, the tail risk is high."

Larger Context: Concerns Emerge Regarding Tech Giants' 3 Trillion Yuan Off-Balance Sheet Commitment

Broadcom's latest deal is just one example of the AI funding wave.

According to The Wall Street Journal, nine top tech companies—Alphabet, Meta, Microsoft, Amazon, Oracle, Nvidia, Broadcom, SpaceX, and AMD—disclosed a total of approximately $3 trillion in off-balance-sheet commitments in their latest securities filings, the vast majority of which are directly related to AI infrastructure development. This figure is approximately five times the combined capital expenditures of these companies over the past year, which totaled $600 billion, and represents a roughly 50% increase from the previous level of approximately $1.8 trillion in just two months.

The core components of this implicit liability include approximately $1.2 trillion in "uncommitted leases" and approximately $1.9 trillion in "purchase commitments." Under current accounting standards, neither type of expenditure obligation needs to be included on the balance sheet before closing or rent payment. Alphabet and Amazon have recently experienced negative free cash flow, meaning that hyperscale cloud computing providers will continue to rely on capital market financing for the foreseeable future.

Some market participants hold a more optimistic view. John Lloyd, global head of multi-sector and corporate credit at Janus Henderson Investors, believes that triggering residual support requires extreme conditions and emphasizes that the companies involved are "not trying to hide contingent liabilities, but rather trying to finance them."

However, pessimistic concerns focus on a timing mismatch : capital expenditure commitments have preceded revenue and free cash flow; a significant amount of depreciation costs are still being deferred, which will create concentrated profit pressure once construction projects are gradually transferred to fixed assets; and the inconsistent disclosure standards for off-balance-sheet liabilities among companies make it difficult for investors to fully assess the overall risk exposure. As the scale of AI debt issuance continues to expand, whether the bond market can sustainably absorb this supply is becoming a core issue hanging over the market.