AI financing driving private credit growth as refinancing risks rise, Moody's says

High levels of borrowing to fund AI infrastructure is expanding private credit beyond traditional corporate lending, but a wave of loans coming due in the next few years could leave weaker borrowers struggling to refinance, Moody's Ratings said on Tuesday.

Here are more details:

* The ratings agency said AI financing needs now extend beyond data-center construction to land, power, semiconductors, graphics processing units and tensor processing units


* Moody's expects capital spending by the five largest US hyperscalers and CoreWeave to reach nearly $1 trillion in 2027, financed through cash flows, debt and structures such as joint ventures and special-purpose vehicles

* However, a wave of loans coming due between 2027 and 2029 will test weaker borrowers' ability to refinance at higher interest rates, Moody's said

* About 17% of the 607 borrowers tracked by Moody's used payment-in-kind interest, which allows companies to defer cash interest payments but adds to their debt burden

* A Reuters analysis earlier this year found loan maturities at US business development companies would peak in 2028 and 2029

* Recent stress in CoreWeave debt has also highlighted investors' growing concerns about highly leveraged AI borrowers

* Moody's also flagged "circular" financing risks as technology companies, chipmakers and AI developers increasingly invest in, lend to and buy from one another, raising fears that correlated exposures could weaken together during a downturn