Anthropic may not secure investment-grade rating after IPO, Blackstone says

https://wallhop.io/https://www.ft.com/content/59383c7f-8d82-...

ChatGPT became publicly available in November 2022, and Claude followed in March 2023. It's year 4. It's foolish to think we know who the big names will be 20 years down the line, which is the kind of timeline bond investors are thinking about. A lot of people probably wish they could have invested (or invested more) in Google or Facebook in 2006, but they are probably very glad they did not invest in Yahoo or MySpace (or Friendster or Tumblr .. you get the idea) at the time, despite looking very promising (MySpace was beating Google on pageviews on some days in '06 and '07). Instagram and Snapchat and TikTok and WeChat didn't even exist yet.

Is this a surprise?

By any sane normal sense of business and financials these AI labs look terrible on paper.

Any loan would be speculative at best, and the rating would simply reflect that.

Investing in these companies is like going wild at the casino. Sure you might make a fortune but strong odds are you’re gonna lose your shirt.

By reading the comments I wonder if perhaps OAI & ANT are not going to be “model” companies and they are going to be the ones innovating in many fronts and cashing in for the benefits of those advancements…

What I’m trying to say here is, what if, they are staying closed strategically so they keep their most advanced models close to their chest until they make an incredible discovery. Say they cure cancer. In this case, they are taking that IP collaborating with big pharma and cashing in on the upside of such discovery.

So, what if on top of being just another enterprise and consumer product that accelerates the way we all work and live, it also becomes this factory of breakthroughs and that’s where open source models can’t compete with them.

Just speculating…

An IPO is where the investors cash out to spend money on something else. It’s where the founders and early employees get rich enough to start chasing other interests, or just retire outright.

That makes sense, anthropic is in a rapidly changing market. Revenue could crater if a better model is released by a competitor. AI demand could fall behind. Doesn't seem like that will happen, but its definitely not investment-grade debt worthy either.

It would make sense that they'd be considered high risk borrowers.

But that won't stop them from issuing bonds or more convertible notes as they have and the market may or may not bite.

It does add pressure to their IPO proceedings being as high as possible as their funding mechanism tho. But reduces pressure on them if shares crash a bit after that, still high risk borrowers.

How unusual is this? Amazon spent over a decade with junk ratings.

I’ve already stashed the popcorn.

"Risky" doesn't mean "bad investment". All the AI companies are high risk, high reward plays, and their interest rates will reflect that.

That this is only "may not" is the shocker.

Many companies IPO'd in the late 1990s and did not exist 10 years later.

Let's say that the house of cards crashes down and takes the market with it who will shutdown, survive or have no choice but to get acquired for a 90% discount.

Some will be just alive long enough for the early investors to pull out enough before the market crashes.

I'm so excited to see these companies crater.

What could go wrong?

Anthropic won't let people make video games. They are on the wrong side of history.

They are so going to get disrupted. Chinese open weights models will have no such limitations, and there's no way we'll let Anthropic outlaw or ban them. (And even if they did, they can't police the whole world.)

There is no moat. Anthropic should be playing nice, not trying to create a god while holding engineers under their thumb. We will route around it.

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He is the article: Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Blackstone told investors Anthropic may not receive an investment-grade rating immediately after going public, a reversal from its previous guidance that would complicate the AI lab’s ability to finance its massive spending.

The private capital giant told investors in Anthropic’s latest $63bn chip financing deal that the start-up is expected to receive a “high” junk rating from major credit rating agencies after its initial public offering, according to people familiar with the matter.

Blackstone is acting as an anchor investor on the deal, known as “Project North Star”, and is working with banks that stumped up financing on selling the debt on to other investors.

Anthropic filed to go public on Monday, setting up what could be the largest listing of all time next month. The AI lab’s prospectus sketched out its “bold but sane” plans to spend more than $800bn on computing infrastructure between now and 2045.

An investment-grade credit rating is central to those ambitions, enabling Anthropic to borrow at lower rates to finance its AI infrastructure projects. The group has cash and equivalents of more than $112bn, and investors anticipate it could raise about $100bn more in the IPO. Sign reading "Blackstone" outside the Blackstone headquarters in New York, with pedestrians and city lights reflected in the glass. Blackstone’s funds have invested in $9bn of the junior debt at a lucrative yield of more than 10% © Angus Mordant/Bloomberg

While Blackstone had told its investment partners in recent months that it was expecting an investment-grade rating for Anthropic before year-end, it has recently signalled that a rating in the double B range or above is more likely given the guidance it has received from major credit agencies, the people said.

Such a designation would limit the pool of capital that Anthropic could tap because many insurance and pension funds are restricted from taking large positions in junk-rated borrowers. As a result, the company might need to continue to rely on its suppliers with high credit ratings to support its debt-raising efforts.

US tech stocks slid to session lows on Friday following the FT’s report on Anthropic’s rating, with the Nasdaq 100 down 3.7 per cent in afternoon trading. Markets were sharply lower prior to the report after earnings from Amazon and Intel worsened fears about the sustainability of the AI boom.

“It’s all about access to credit, it really matters . . . if [Anthropic] isn’t investment grade, the cost of credit goes higher, that’s not good for anyone,” said a US tech-focused portfolio manager.

“It’s a bloodbath out there,” they added, referring to the sell-off in stocks.

Wall Street banks earlier this week closed the North Star deal, which provides the financing for Anthropic to lease 1.5 gigawatts of Google’s semiconductors. More than $42bn of the senior loans is guaranteed by Broadcom, which co-develops the chips and has an investment-grade rating, while $18bn of the junior debt is backed by the AI start-up’s lease payments.

Institutional investors covet senior debt because it takes priority over junior loans in the case of a default. Broadcom’s high A-tier credit rating was an important factor in allowing Anthropic to secure the financing.

Blackstone’s funds invested in $9bn of the junior debt at a lucrative yield of more than 10 per cent, the FT previously reported. Bankers for Anthropic and rival OpenAI have also lobbied the largest rating agencies to grant the AI labs investment-grade ratings after their IPOs.

Project North Star’s $18bn junior debt, which exposes lenders more acutely to Anthropic’s credit risk, has been assigned a double B plus rating with positive outlook from Kroll Bond Rating Agency, a slight improvement from stable outlook in a similar deal known as Project “Big Sky” four months ago. It also received a double B rating from Morningstar DBRS, the people added.

The big three credit agencies — Fitch, Moody’s and S&P — which have bigger influence on companies’ borrowing costs, have not officially issued any credit ratings for Anthropic.

Anthropic, Blackstone, KBRA, Morningstar DBRS and S&P declined to comment. Fitch and Moody’s did not respond to requests for comment.

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Shocking. /s

Paywall; I wish HN would just ban paywalled posts.

Anthropic is in the worst position of the AI labs. As far as investors and "the market" are concerned, the only AI that matters is the one built into your phone, car, your TV, your smart home and appliances. Anthropic has none of that share. It's all Google, Apple, and OpenAI powering Siri.

There are some similarities between Anthropic (or OpenAI) and WeWork. Obviously the large difference is software but there is a whole lot of leasing hardware going on (neither frontier lab owns any infrastructure as far as I can tell), long term capital commitments, short term monthly subscriptions, no real moat for the frontier labs (or a hip office rental space), etc.

I think 2027 will be when a lot of companies revisit their AI spend and ROI. Have there been measurable business benefits reported by the media outside of programming?