Broadcom backs $63B Anthropic chip deal with $43B backstop

Broadcom has agreed to cover up to about $43 billion of potential losses on a $63 billion debt package. The money will pay for its AI chips that Anthropic plans to lease. The chipmaker is acting as supplier, guarantor and dealmaker in what BusinessDesk, republishing The Wall Street Journal described as the largest AI debt deal ever.businessdesk.co.nz

How the deal works

Bank of America, Blackstone, Citi and Morgan Stanley announced the transaction on October 26. A newly formed special purpose vehicle will buy Broadcom XPU accelerators and networking gear and lease them to Anthropic, with deliveries expected from 2027, according to the joint release. Bank of America, Citi and Morgan Stanley are arranging the first-lien debt. Blackstone is the only provider of the committed second-lien portion. Broadcom is giving residual value support equal to the first-lien amount.investors.broadcom.com

Broadcom's 8-K filing says its exposure is the gap between 72.5% of outstanding lease obligations and whatever the racks can be resold or recovered for. The maximum undiscounted liability is about $43 billion once all the racks are deployed, according to a summary of the filing. Reuters had put the senior tranche at about $43.5 billion, TheStreet reported. Hock Tan, Broadcom's CEO, said the deal "validates that there is capital available to finance such growth".thestreet.com+2

A last-minute push

Tan spent nearly two months trying to get banks to commit more than $40 billion to the deal, known as "Project North Star." Some lenders thought about pulling out as interest rates rose, the Journal reported. He held talks with bank executives over the October 24–25 weekend and agreed to higher interest rates. The banks also got more comfort on Broadcom's guarantees. The deal was announced after Anthropic made its IPO filing public. The chips are tensor processing units that Broadcom is developing with Google.datacenterdynamics.com+1

The banks plan to sell about $22 billion of the debt in the investment-grade bond market, but not until the chips arrive next year. That leaves them exposed if rates climb in the meantime, according to the Journal. Anthropic's prospectus estimates it will pay more than $125.2 billion to lease Broadcom chips.businessdesk.co.nz

Stacking exposure

This is not Broadcom's first backstop for Anthropic. In an earlier $35 billion financing from Apollo Global Management and Blackstone, Broadcom's backstop was up to $29 billion. Moody's has warned that risk grows if several deals like this pile up quickly, TheStreet noted, citing Reuters.thestreet.com

Investors have taken the news in stride so far. Broadcom shares rose in morning trading on October 28. The open question is whether used AI chips will still be worth enough years from now, when Broadcom will be selling the newer chips that push their value down.finance.yahoo.com