A Meta Platforms data center.
(Bloomberg) — When Meta Platforms Inc. turned to lenders to secure $26 billion in debt funding for construction of a sprawling new data center, one key detail made all the difference in fueling a heated bidding war for the deal: the technology giant agreed to a special guarantee on the Louisiana complex.
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The financing is being run through a complex arrangement that keeps the debt off of Meta’s books and frees up its balance sheet as it pursues an aggressive push into artificial intelligence. A joint venture will actually build and own the 4-million-square-foot Hyperion facility, while Meta will occupy and use the data center under a 20-year lease.
But the social-media company also offered a sweetener: If it decides to terminate the lease early or opts to not renew it and the value of the data center falls below a pre-determined threshold, the company will reimburse investors for potential losses, according to people briefed on the matter who asked not to be identified discussing confidential deal terms.
Such agreements, known as residual value guarantees, are meant to protect investors should the value of the underlying asset sink. But the use of this clause in such a large data center sets a new precedent, according to the people. Given how AI infrastructure can take years to build and how the data center could quickly be made obsolete by technological innovations, Meta offered the backstop to encourage investors to lay out tens of billions of dollars.
“The specific nature and high cost of the construction of these data centers is unprecedented,” said Teddy Kaplan, who runs New Mountain Capital’s net lease real estate strategy and wasn’t involved in the Meta deal. “You could see an extraordinarily high degree of technological change that would render those facilities less or even unusable by a future user.”
Meta picked Pacific Investment Management Co. to lead the $26 billion debt financing following a months-long competition involving some of the biggest asset managers that was overseen by Morgan Stanley. Blue Owl Capital Inc. is contributing $3 billion in equity to the joint venture.
Representatives for Meta, Pimco, Blue Owl and Morgan Stanley declined to comment.