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Earlier quoted context omitted.
Yeah, it's very dumb to own real estate like this directly for a c-corp
Is it dumb for tax reasons?
RE throws off much income.
It's also difficult to transfer the RE to another entity without realizing gains.
> 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.
Earlier quoted context omitted.
It’s not necessarily lying, but it’s certainly deceptive.
Not even deceptive. This is relatively normal business practice. It’s easier to think of this as “project risk” as opposed to corporate risk overall. This isn’t different than creating a subsidiary to embark on a new program, with its own debts and assets, collateralized by a parent company. It’s effectively the same as what happens every time a major movie studio starts a new film project.
LOL "The entity is named “Beignet,” presumably because “Off-Balance-Sheet Leverage Vehicle No. 5” tested poorly with focus groups."
Folks in the comments here begging ChatGPT to teach them how to read
This article is poorly written. It’s so desperate to be clever and edgy that it’s hard to get the facts out of it. ChatGPT isn’t really a solution because the source is both low quality and has questionable motives. Going to any of the other good articles on the subject that have been linked in this comment section is much better.
Soo they just borrowed money from themselves to pay for their data center? Nice.
Earlier quoted context omitted.
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.
That's not accurate. This is debatable but subprime loans were mostly accurately rated. They were rated very low. That low rating was the ultimate precursor to the crash, because it means banks carrying those poorly rated vehicles needed to balance them with different highly rated vehicles to keep their own rating high enough to qualify carrying and lending other financial assets on their books. There were so many of…
> The bonds for the Hyperion data center priced with a coupon of almost 6.6%, roughly a percentage point higher than Meta’s outstanding corporate bonds and in line with the average junk bond. That’s a higher yield than investors would expect given that S&P rated the Hyperion bonds A+, safely within the investment-grade spectrum.
Apparently the bond market is pricing the guarantees made by Meta to this other entity as not quite as good as bonds that Meta issues itself, and Meta is willing to pay the higher interest rate. So, not entirely a free lunch?
I guess sometimes a company wants to issue junk bonds and its rating gets in the way.