Dan Ivascyn wanted in on the deal backing a sprawling $16 billion Oracle Corp. data center campus in Michigan — as long as it was done his way.
Late last year, the Pacific Investment Management Co. chief investment officer was willing for his firm to be the anchor investor in the ambitious financing if it could be structured as long-term bonds — with more attractive yields — that matched the duration of Oracle’s lease, according to people familiar with the discussions.
Bank of America Corp., in charge of lining up the deal, fielded initial interest from other investors for other options, such as shorter-dated and cheaper debt, but the timing proved tricky. Banks had financed billions of dollars of loans backing Oracle-linked data centers, and some lenders had been struggling to offload the debt.
Months later, BofA was back and willing to do a private deal on Pimco’s terms.
Representatives for Pimco, BofA and Oracle declined to comment.
Pimco has been one of the loudest voices warning of risks in private debt markets, and Ivascyn, 56, has cautioned on the trillions of dollars pouring into the infrastructure underpinning the artificial intelligence boom.
But a $2.3 trillion firm can’t just sit out the biggest megadeals in the debt market. So it’s wading in carefully: Ivascyn has assembled a squad of 30 to 40 people specifically to oversee the firm’s AI infrastructure bets, and personally signs off on every deal.
“It’s critical we get this right,” Pimco President Christian Stracke said in an interview. “We’re only really taking a leading role in financing where we can structure the deals and drive the terms.”
Ivascyn’s conviction in the quality of the deals he’s engineering is reflected in the flagship fund he oversees, which holds more than $4 billion of debt from a separate $29 billion financing it helped lead for a Meta Platforms Inc. data center campus in Louisiana last year. That accounts for about 15% of the firm’s exposure to the Meta financing and around 1.2% of the fund. The firm holds about $10 billion from the Oracle deal across its funds.
Pimco executives say they’re aware of the risks involved with betting on a nascent technology, and they’ve figured out how to mitigate them. With the Meta deal, the bond firm secured an agreement for the tech giant to reimburse investors for potential losses if it terminates the lease early or opts not to renew it, and the value of the data center falls below a certain threshold.
‘Flexed Our Size’
So-called hyperscalers such as Meta and Oracle are expected to spend more than $5.3 trillion on AI and data centers by 2030, according to Goldman Sachs Group Inc. Debt that’s privately negotiated will be crucial to fund that growth.
Pimco is joining the ranks of alternative asset giants including Apollo Global Management Inc. in leveraging its size to dictate how the industry’s biggest debt deals get structured.
While Pimco may be a newcomer to AI infrastructure, it’s relying on the same hard-nosed style that has defined the firm for decades.
The maturity of the financing turned out to be the key sticking point for Pimco when it was negotiating the Oracle deal.
The project’s backers, Blackstone Inc. and Related Digital, a venture of New York property developer Related Cos., were building the campus specifically for Oracle, which had agreed to a long-term lease. Pimco wanted long-dated debt to match that lease, while BofA and Related initially sought shorter-term financing that would lower the borrowing costs and a call option allowing for an early pay-off.
Shorter-term financing is typically cheaper for borrowers, but it leaves investors exposed to refinancing risk if market conditions deteriorate before the debt matures.
Ultimately, Pimco got its way. The asset manager dictated the structure of the financing, agreed to the call option in a way that would shield its returns, anchored most of the deal and left banks to syndicate the remainder to other investors. The outcome illustrated Pimco’s ability to shape not only the investments it holds, but also the terms other backers ultimately buy into.
Blackstone declined to comment and Related didn’t respond to requests for comment.
By taking large positions in AI data-center financings, Pimco is increasing its exposure to a sector the firm itself has described as still untested.
See More: A Call for Diversification: Research Affiliates-PIMCO Midyear Recap
Without a broker-dealer license, Pimco relies on banks to syndicate portions of the debt it doesn’t keep. The approach lets the firm anchor multibillion-dollar financings while reducing its ultimate exposure, but also leaves it dependent on banks should it choose to reduce exposure.
The approach differs from rivals such as Apollo, which typically syndicates roughly half of the debt it underwrites to outside investors and collects fees on it. That model also carries risk: If investor demand falls short, Apollo can be left holding a much larger share of the financing than it intended to. For its part, Apollo says it doesn’t rely on syndication to offload debt.
Pimco scored some early gains from the Oracle deal, with the debt trading around par, but has since fallen to around 95 cents on the dollar, according to data compiled by Bloomberg. The cost of protecting the debt tied to the Oracle data center against default reached a multiyear high last week on doubts that its huge AI investments will pay off.
Debt issued by technology companies has come under pressure amid growing investor concerns about the sustainability of the debt-fueled AI boom.
As part of the Meta deal that helped finance the Louisiana-based data center along with Blue Owl Capital Inc, Pimco also agreed to work with Morgan Stanley to syndicate some of the debt to other investors, giving it an edge over alternative asset managers that would have restricted the pool of private investors that could have participated.
“We found the debt to be incredibly attractive,” Pimco Chief Executive Officer Manny Roman told Bloomberg TV earlier this year. “And we flexed our size to actually have a very good investment for our investors.”
That Pimco is financing two of the biggest AI infrastructure projects may come as a surprise to those following its warnings about corners of private credit. It was one of the early critics of the asset class, even as it grew into a $1.8 trillion industry. In comments earlier this year, Ivascyn said the vast amount of funding needed for AI infrastructure is spawning new risks in the credit market.
“It’s not a sector where we want to be overweight just given the uncertainty, the volatility, the need to predict how companies are going to make money in this space,” he said.
But large anchor investors are likely willing to stomach some concentration risk if they can help establish the market, according to Andrew Keches, co-head of US high grade research at Barclays Plc. After the Pimco deal, Meta went on to strike a $12 billion agreement with BlackRock Inc. to finance a data center campus in El Paso, Texas, that mirrors the one with the bond giant and Blue Owl.
“If you have an investment opportunity where you can influence what the docs look like, engage with the borrower, and shape your own credit protection, you get to the point where you create the exact security you want,” Keches said.
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