Broadcom credit risk climbs as AI chip financing guarantees expand
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Bond traders pushed Broadcom Inc. credit risk measures higher in August as the company backstops multibillion-dollar AI chip financing deals. Yields on Broadcom's 5.15% bonds due 2031 rose about 14 basis points, while five-year credit default swaps widened 28 basis points. The moves come as Broadcom negotiates more than $60 billion in debt for an AI chip financing package expected to benefit Anthropic PBC.
Key Facts
- Yields on Broadcom's 5.15% bonds maturing in 2031 rose about 14 basis points in August.
- Broadcom's five-year credit default swaps widened 28 basis points in August, more than Oracle Corp. and SpaceX.
- Broadcom is in talks to raise more than $60 billion in debt for an AI chip financing deal expected to benefit Anthropic PBC.
- Broadcom earlier this year agreed to backstop most of a $35 billion debt package financing custom AI chips leased to Anthropic.
- JPMorgan strategist Tarek Hamid cited 'phantom leverage' risks as AI backstops could stretch into the trillions.
Credit Market Reaction
Broadcom's 5.15% bonds due 2031 saw yields climb about 14 basis points in August. Five-year credit default swaps on Broadcom widened 28 basis points over the same period. That CDS move exceeded those of Oracle Corp. and SpaceX. Tony Trzcinka, investment grade portfolio manager at Impax Asset Management, said the rise in Broadcom's CDS appears more specific to its balance sheet than to overall AI investment angst.
AI Financing Backstops
Broadcom is negotiating more than $60 billion in debt for an AI chip financing deal expected to benefit Anthropic PBC and other companies. The company could potentially guarantee a portion of a senior-secured tranche under the proposal. Earlier this year Broadcom agreed to backstop most of a $35 billion debt package, with investors including Apollo Global Management Inc. and Blackstone Inc. financing the purchase of custom AI chips leased to Anthropic. Chipmakers like Broadcom and Nvidia Corp. are effectively lending their balance-sheet strength to clients to boost purchasing ability.
Phantom Leverage Concerns
Tarek Hamid, a strategist at JPMorgan Chase & Co., wrote in a Monday note that Broadcom's potential $60 billion financing deal adds to concerns around a growing layer of 'phantom leverage' beneath the AI ecosystem. Hamid said the backlog of leases, purchase commitments, residual value guarantees and other backstops is poised to stretch into the trillions. In an industry downturn, similar backstops could force chipmakers to honor billions in pledges when their own earnings are under pressure.
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Broadcom credit risk climbs as AI chip financing guarantees expand
