As AI-driven exuberance drives stock markets higher, bond vigilantes are pushing Treasury rates higher while credit markets are repricing data centre-related debt lower. While equity analysts might get paid for dreamy earnings forecasts, the best creditors can hope for is repayment at par if a bond is held to maturity. So they look at the details where, as ever, devils reside.
For example, while the debt being taken on by hyperscalers to build out AI infrastructure is getting lots of attention and is even being blamed for crowding out Treasury bonds, creditors have taken this a step further in typically geeky fashion, scrutinising off-balance-sheet obligations such as leases. Any credit analyst worth their salt puts lease obligations into their balance sheet calculations, capitalising them in financial jargon — even if the issuer does not. We don’t do this to be schoolmarms; like bond coupons, operating leases are typically non-cancellable outside of bankruptcy.
Senior unsecured creditor committees for retailers in Chapter 11 routinely have a landlord representative sitting at the same table as unsecured bondholders and trade creditors — these three creditors are “pari passu”, ie equal, in their claims. As outlined in The Credit Investor’s Handbook, the rule of thumb after the introduction of the ASC-842 accounting rule in the US is to add the balance sheet operating lease liability to debt and divide by ebitda plus rent to arrive at “lease-adjusted leverage.” As hyperscalers move from cash cows to net borrowers, it’s easy to account for the investment-grade-rated debt issued to build data centres. The dollar amount, maturity and coupon of bonds are fixed and clear.
When Meta issued $25bn in bonds earlier this year, analysts duly added $25bn to its debt burden and the new interest expense to their cash flow forecasts. But when Meta and private capital firm Blue Owl created a venture last year to build a huge data centre in Louisiana known as Hyperion, the maths was not so easy. This and other hyperscaler lease obligations are murky, in part because most of the associated data centres are in the construction phase and thus not yet reflected in the balance sheet operating lease liability.
What we do know about them is not reassuring. For example, Meta disclosed in its most recent quarterly report some $347bn in future lease obligations on projects that have not yet commenced. This compares with a puny $84bn of on-balance sheet debt at the end of 2025.
The $347bn is not the balance sheet operating lease liability; Meta will use a discount rate to calculate the present value of the liability of each lease as it comes online. But it would take a double-digit discount rate to whittle that below $100bn. Comprehensive lease disclosures are only required annually.
So in a year like 2026, which has seen an explosion of data centre leases, creditors might find an unpleasant surprise in Meta’s next annual report. Even once it is filed, the disclosure may not give them much to go on. Unlike store leases which are fairly standard, if you’ve seen one data centre lease, you’ve seen just one data centre lease.
Although Meta has not provided explicit capex guidance beyond 2026, sell-side estimates exceed $500bn through 2028, more than eating up its forecast operating cash flow. Whether the associated financing takes the form of lease liabilities or debt, Meta and its affiliates (future vehicles like Hyperion) will return regularly to the credit markets...
Source: Financial Times Companies · Summarized by HeadlinesBriefing