Thoughts on Meta’s ~$30bn JV with Blue Owl for the ‘Hyperion’ data centre project (a primer on conduit debt financing will be coming next Sunday where I talk about this deal in more depth):

The key question I have: is Meta actually guaranteeing the rent payments? When I read through the S&P rating report, I don't see any reference to a payment guarantee, and it's not shown on the structure chart either. My interpretation is that Meta isn't providing a direct payment guarantee to Laidley LLC for the rent. Instead, there's a Master Value Guarantee (MVG) that kicks in if Meta doesn't pay rent, running from Meta to Project Beignet Holdings. What I can't quite figure out is how Meta takes on the construction delay and cost overrun obligations.

Honestly, I wouldn't buy these notes based purely on S&P's rating of this structure. Before committing capital, I'd need to:

• Review the shareholder agreement between Blue Owl and Meta

• Understand whether all 11 separate leases are co-terminus or tied to individual building completion dates - and why structure it as 11 separate leases in the first place?

• Figure out why the underlying asset can't be pledged directly to noteholders

• Examine the Residual Value Guarantee (RVG) terms in detail

• Determine whether the RVG gets partially triggered if Meta only renews some leases (which seems like the probable scenario if AI demand weakens), or if lease renewal is all-or-nothing across all 11 buildings

• Identify any scenarios where the RVG obligation could be transferred to another party

What really concerns me is that S&P points out the RVG runs between Meta and Project Beignet Holdings rather than Beignet Investor LLC (the note issuer), meaning investors are structurally subordinated. S&P even describes this arrangement as "unique" - which is rarely a good sign in structured finance.

I'm also skeptical of S&P's analysis regarding the liabilities that Project Beignet Holdings could accumulate that would rank senior to the noteholders. My concern with this deal is that recovery rates could be significantly lower than S&P assumes if things go sideways and the RVG is called. The lack of direct security over the assets is particularly worrying - it leaves investors without strong defensive measures in a restructuring scenario.

I also struggle to see how Meta's credit rating won't be affected by taking on these contingent liabilities. Looking ahead, Meta will presumably replicate this structure for future data center projects, gradually accumulating a portfolio of correlated contingent obligations. That strikes me as a real problem waiting to materialize.