Bond investors are watching roughly $70 billion in potential off-balance-sheet guarantee obligations linked to large AI companies, according to Bloomberg. As financing for AI chips expands, so-called residual value support arrangements may become more common.
Nvidia may provide sizable backing for chip financing deals
Bloomberg reported that after Nvidia announced a $500 billion financing partnership plan this week, the company could also provide tens of billions of dollars in residual value support for related debt transactions.
These financings are typically structured through special purpose vehicles that borrow to buy chips, with debt repayment supported by cash flow generated under contracts with the users of the hardware. If customers stop paying, the assets are re-leased or sold to repay creditors. If a shortfall remains, the party providing the guarantee covers the gap.
Nvidia CEO Jensen Huang said the company can, depending on the project, offer residual value support for up to 25% of a transaction.
Analysts and rating firms are weighing the downside scenario
CreditSights analysts said the structure is effectively similar to Nvidia selling a put option. The cost is low during an AI boom, but the guarantee becomes much more significant if the sector suddenly turns sharply lower, customers default, and hardware values decline.
Rating agencies have also started to view some of these arrangements as debt-like contingent obligations.
Meta and Broadcom have already used similar structures
Meta previously used similar structures in about $27 billion and $13 billion of data center debt financings. Broadcom, meanwhile, provided most of the residual value support for a $35 billion AI chip financing tied to Anthropic.
Moody’s warned that if these transactions increase rapidly in the near term, they could limit Broadcom’s financial flexibility and put pressure on its credit profile.