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Credit report shows Meta keeping $27B off its books through advanced geometry

news.ycombinator.com

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Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#101

Post by Aurornis »

illwrks wrote: post #70
loeg wrote: post #55

Earlier quoted context omitted.

A lot of comments praising this summary, but I'll criticize it: it's still too verbose, and misses the point. Meta wants to fund this project, but doesn't want the debt on own its books (because it would impact its vanity AA credit rating). Debt investors are happy to finance a special purpose vehicle guaranteed (in a non debt way) by Meta at a credit rating almost as good as Meta's (say, A). No one is confused this…

So… ‘vanity’ ratings… what’s the point of them then.

There are a lot of places where the credit ratings are hardcoded (to borrow a term) into funds. There are pension funds and other vehicles that might be bound to only invest in AA rated companies.

So if a company drops their AA rating it could force them out of a lot of funds and investment vehicles.

This complicated vehicle where the debt and assets are in another LLC isn’t actually tricking anyone in finance. If you’re reading about it from blogs then it’s already common knowledge. The structure isn’t actually a one way trick, it’s a set of tradeoffs and protections for the company. They probably could have achieved better terms going direct but with higher risk.

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#102

Post by underlipton »

gorgoiler wrote: post #32

It’s buried in the article but this about a debt vehicle created to finance a “2.064 GW hyperscale data center campus”. That’s approximately equivalent to a One-Third-Gorges Dam (one tenth of the Three Gorges Dam.) Downstream of the capex to build the data centre is, presumably, a sister capex to build a power station. At what stage do these come hand in hand? Or does this financing include provisions to pay the elec…

Of course not. We're eating roast beast. (I'm saying that the entire endeavor is a fairy tale that we're misguidedly bringing into live-action.)

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#103

Post by sethops1 »

loeg wrote: post #64
austin-cheney wrote: post #17

> This treatment is considered acceptable because the people who decide what is acceptable have accepted it. Wasn't that the root of the 2008 crash? The debt spiral was acceptable because people were making enough money in the present that regulators were powerless to advise against it. In a sane world people often go to jail for decades when doing this at pennies on the dollar.

The 2008 crash was in part caused by inaccurately rating synthetic bundles of subprime mortgage debt as extremely low risk (e.g. AAA). Subprime borrowers had a much higher risk of defaulting than a AAA rating implied. On the other hand, Meta has great creditworthiness. And guarantees this vehicle. So... it's not the same.

Except they're taking on a huge amount of debt, enough that it would lower their credit rating, which is why they're trying to offload it ...

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#104

Post by hrimfaxi »

detourdog wrote: post #71
mcny wrote: post #53

Earlier quoted context omitted.

I thought the whole point of LLC was to limit liability so you wouldn't be liable for debt beyond your paid up capital? Why would you ever sign a personal guarantee?

The liability I’m shielded from is not debt I specifically requested. I’m shielded from unknown events.

Why would the CEO have the personal liability here and not the board? Does Sundar Pichai have to personally guarantee loans for Google? That would be weird since the CEO could be fired.

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#105

Post by hrimfaxi »

htrp wrote: post #65
bdangubic wrote: post #54

Earlier quoted context omitted.

banks are not stupid… you can’t just open LLC, borrow billion bucks, spend it and then be like “oops, LLC mates, not liable”

You can if you are Meta and are willing to litigate the hell out of it.

Do you think any CEOs of gigantic corporations are personally liable for any loans made by the companies they work for? I would be incredibly, incredibly surprised to hear if that's the case.

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#106

Post by illwrks »

Aurornis wrote: post #101
illwrks wrote: post #70

Earlier quoted context omitted.

So… ‘vanity’ ratings… what’s the point of them then.

There are a lot of places where the credit ratings are hardcoded (to borrow a term) into funds. There are pension funds and other vehicles that might be bound to only invest in AA rated companies. So if a company drops their AA rating it could force them out of a lot of funds and investment vehicles. This complicated vehicle where the debt and assets are in another LLC isn’t actually tricking anyone in finance. If yo…

Instinctively I try and simplify things. It this was a person with an excellent credit score, it’s as if the person is taking on extra debt to start to create something they need, but trying to hide it.

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#107

Post by skizm »

Serious questions: won't banks and ratings agencies simply treat this as Meta's debt since it it effectively Meta's debt? What changes if this was on their "official balance sheet"? How does playing with the wording actually help Meta overall?

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#108

Post by richiebful1 »

detourdog wrote: post #33
friendzis wrote: post #28

Earlier quoted context omitted.

I have skimmed through the article and if I get the details through all the humor, satire and sarcasm even remotely correct, the major assets are actually the duality of payment obligations and residual value guarantees, both from meta. One could include cost overrun protection at the construction time too. The "fire sale prices" would be so delicious as to guarantee that the entity(-ies) involved stay solvent as lon…

My personal experience with LLC loans and banks is that the bank is using the assets as collateral and me as a backstop.

"Me" in this case being a stand-in for the principal owner, which could be a corporation, individual, or group of individuals

Re: Credit report shows Meta keeping $27B off its books through advanced geometry

#109

Post by jfengel »

gruez wrote: post #92
CPLX wrote: post #31

Earlier quoted context omitted.

Is Meta actually obligated to repay the loans or not? That’s how you can decide if this is disingenuous or not. If Meta is obligated to repay the loan and used to synthetic means to get it off the balance sheet that’s a problem. If they have in fact successfully transferred risk to other parties then that’s what deals like this are for. It’s the whole reason the concept of limited liability exists. I am fully willing…

>Is Meta actually obligated to repay the loans or not? They aren't, but they're obligated to pay leases for it (they can't just build the datacenter and then walk away), which is kind of like having to repay the "loans".

I'm not an accountant, but "contractually obligated to pay" sounds like a debt to me.

If the Generally Accepted Accounting Principles don't require that to manifest on the balance sheet, then it sounds like the principles aren't very good ones.

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