- Broadcom CEO Hock Tan held 11th-hour talks with bank executives over the weekend and agreed to higher interest rates on the loans to finalize “Project North Star,” a $63 billion debt deal to finance chips for Anthropic, The Wall Street Journal reported. Tan had spent nearly two months trying to get banks to commit more than $40 billion to the largest AI debt deal ever, and Broadcom shares were up 2.33%.
- The deal was led by Bank of America, Citigroup and Morgan Stanley and was announced late Monday after Anthropic released its IPO filing. A shell company borrows the money to buy tensor processing units designed by Broadcom and Google, Anthropic’s lease payments repay the loans, and Broadcom guarantees that lenders will be repaid, so it only takes a loss if Anthropic can’t make its payments.
- On top of the guaranteed loans, North Star includes another $18 billion of riskier debt without a Broadcom guarantee, half of which Blackstone will finance, about $9 billion (Lumida calculation). Banks plan to distribute around $22 billion, half of their debt, to the investment-grade bond market, but won’t sell any bonds until later next year when the chips are delivered, and they have promised to cap the interest rate.
- In its IPO prospectus, Anthropic estimated it will pay more than $125.2 billion to lease Broadcom chips, while Broadcom and Google have committed $42 billion and $20 billion, respectively, to Anthropic, together $62 billion (Lumida calculation). Critics have described arrangements like this as “circular financing.”
What Happened?
Over the past few weeks, some banks grew anxious about North Star, people familiar with the matter told the WSJ. Given rising interest rates and growing difficulties in markets for AI ventures, some felt they weren’t being paid enough for the risk and considered pulling out altogether. Tan’s weekend intervention, higher rates and more comfort around Broadcom’s guarantees got the commitments finalized, and a chunk of debt partly financed by Blackstone brought the total to $63 billion. North Star is the sequel to an earlier Anthropic and Broadcom chip-financing deal called “Big Sky,” where Apollo financed some of the riskier pieces and still hasn’t been able to complete some deals to unload the debt.
Why It Matters?
The episode shows how dependent the AI startups are on their bigger commercial partners for financing. Broadcom acted as supplier, guarantor and negotiator in the same deal, which links its balance sheet more tightly to Anthropic’s ability to pay its lease bills. It also shows lenders are gaining the upper hand: higher rates make capital harder to raise, banks and investors want to limit their exposure to an industry some believe is showing signs of a bubble, and many banks are still trying to unload AI loans they already committed to. Some have traded the loans to clients at a loss to free up capital.
What’s Next?
The main near-term risk sits with the banks: if interest rates rise sharply before they sell the bonds next year, they could have to sell the debt at a loss because of the rate cap, and some may choose to keep the loans instead. Investors will also watch demand for the $18 billion of unguaranteed debt, since rising AI-related volatility may curb the appetite of private-credit firms, insurers and hedge funds for risk tied solely to Anthropic. The struggle for weaker credits is already visible, as Morgan Stanley has found few takers for a roughly $300 million bond tied to Lambda’s “Project Blitz” data center in Kansas City despite roughly doubling the yield.
Affected Tickers and Coins: AVGO, GOOGL, BX, BAC, C, MS
Source: WSJ
