Meta credit risk gauge hits record after $825B disclosure

The cost of insuring Meta Platforms' ↘ 0.96% debt against default climbed to a record on Thursday, October 22, and its bonds weakened. The company had just disclosed that its future spending commitments, most of them tied to artificial intelligence infrastructure, had grown to about $825 billion. Bloomberg reported that the moves revived fears that big tech companies will sell more debt to pay for the AI buildout, in a bond market that is already crowded with such issuance.finance.yahoo.com

Five-year credit default swaps on Meta's debt rose as much as 8.9 basis points, to about 119.3 basis points a year, according to ICE Data Services. That is the highest intraday level since the contracts started trading, according to Bloomberg. Meta's bonds also lost ground against Treasuries. Protection costs rose for other hyperscalers and chipmakers as well, including Oracle ↗ 0.49%, Microsoft ↗ 0.66% and Broadcom ↘ 0.48%.finance.yahoo.com

What Meta disclosed

In a filing on Thursday, Meta said it has agreed to spend about $825 billion on leases and contracts in the future, Bloomberg reported. In July, the figure was close to $700 billion. Operating and finance leases that are not yet on the balance sheet total $355.7 billion. They cover data centers and energy infrastructure, with lease terms starting between now and 2036. As of September 30, Meta also had $454.5 billion in non-cancellable contracts, many for third-party cloud computing, energy for data centers and hardware for its Reality Labs division. The company is also obligated to buy up to $14.7 billion of cloud capacity over five years, according to the filing details.ca.finance.yahoo.com

Spending outpaces cash flow

The disclosure came a day after Meta reported its third-quarter results. Revenue rose 26% to $64.6 billion, and capital expenditures reached $34.91 billion. The company now expects full-year capital spending of $135 billion to $145 billion, up from a prior range of $130 billion to $145 billion, according to its earnings release. Free cash flow was negative $2.12 billion for the quarter, and the shares fell roughly 8% on Thursday, CNBC reported.investor.atmeta.com+1

Meta also announced a new class of nonvoting Class C stock. It will take effect in January 2027 and works much like a two-for-one split. Reuters reported that the shares are meant to help fund acquisitions and keep top talent while preserving CEO Mark Zuckerberg's control. "Meta plans to issue nonvoting shares to fund AI investments without diluting CEO Mark Zuckerberg's control," Zacks Investment Research strategist Andrew Rocco told the AP.money.usnews.com+1

Meta has said it expects to keep "investing aggressively" next year, according to AI Tech Daily. Credit investors now have to judge how much more of that spending will be financed with debt.aitechdaily.com