The Zhitong Finance App notes that before Nvidia (NVDA.US) fell into turmoil due to the departure of its long-term head, Hwang In-hoon, a major plan he promoted with Wall Street giants was proving to be far more complicated than he had imagined.
According to people familiar with the matter, after reaching a $500 billion partnership with the world's six largest asset management companies and not seeing any deals land for several months, Nvidia faced pressure from some customers and Wall Street partners over the past month to increase its “bottom line” of financing.
The company previously said it would provide a so-called “residual value support agreement” covering up to 25% of the transaction amount — lower than the ratio offered by competitor Broadcom (AVGO.US). According to some sources, this gap makes it more difficult to match the deal.
25% is unable to support the deal. The first batch may land until January next year
According to one of the sources, currently the earliest Nvidia may announce the deal is January next year. However, this still assumes that Hwang In-hoon's dramatic departure after reports of her affair came to light, which would not slow down any deal — or even the entire plan.
Compared to the August scene, this is an amazing reversal — it's probably the peak of “Jensanity” (Jensanity) on Wall Street.
Wong In-hoon, wearing his iconic leather jacket, was featured on TV by Apollo Global Management (APO.US), Blackstone (BX.US), Brookfield Asset Management (BAM.US), Goldman Sachs (GS.US), and KKR & Co. Crowded by (KKR.US) executives. They jointly promoted a platform and claimed that they would work together to finance integer-scale AI computing transactions totaling 500 billion US dollars.
Back-up mechanism, Broadcom precedent, and Nvidia's dilemma
The chip debt financing market has exploded in size over the past year, with giants such as OpenAI, Anthropic PBC, and SpaceX looking to get the expensive processors needed to complete specific AI tasks. Related expenses have already exceeded hundreds of billions of dollars.
Generally, companies set up special purpose vehicles (SPVs) to borrow money to buy and hold chips, and then rent and use them by customers. The value of these special purpose carriers comes from the cash flow generated from contracts using the technology, plus the value of the chip itself.
However, lenders are worried that companies that are burning money may default or tear up leases, so the residual value support provided by Nvidia and Broadcom is critical to attracting lenders. The way this type of underwriting mechanism works is that once rent payments are interrupted, the relevant assets are re-leased or sold to repay the remaining debt; if there is still a gap, the party providing the underwriting makes up the difference.
The point is that this not only introduces more lenders to these transactions, but also helps to obtain higher credit ratings, thereby reducing borrowing costs. Broadcom has begun this type of transaction through a partnership with Apollo and Blackstone called “AI XPV” in June.
In May, Broadcom provided cover for $30 billion of a $35 billion debt loan. Anthropic leased a Tensor Processing Unit (TPU) — a chip manufactured by Broadcom and Google, a subsidiary of Alphabet Inc. The underfunded portion received an investment-grade rating and lower interest rates.
The second $63 billion deal will also support Anthropic. According to a document, Broadcom provided cover for 72.5% (about US$43 billion), and the first lien portion of this financing was arranged by Bank of America (BAC.US), Citigroup (C.US), and Morgan Stanley (MS.US). Meanwhile, Blackstone is the sole provider of the committed portion of the second lien financing. Part of the debt is expected to be sold to a wider group of lenders in the first quarter.
If Nvidia refuses to increase its residual value guarantee by 25%, it may make it harder for AI and cloud customers to afford its chips, and it will also reduce the attractiveness of transactions to lenders — especially when the market is still promoting similar deals with better terms during the same period.
For Nvidia, a higher back-up ratio means greater risk, and it will also weaken its original intention to use third-party funding to build a platform and boost the next step in the AI boom.
Furthermore, there is Nvidia's own problem — where the company is going after losing its only CEO for the past 30 years.
The company said on Thursday that Chief Financial Officer Colette Kress will be the interim CEO and that Hwang In-hoon will no longer have any ties to the chipmaker. Under his leadership, Nvidia is known as the “central bank for AI,” holding and underpinning the entire ecosystem to boost external confidence in an industry that is still in its early stages.
The August funding announcement was a concentrated expression of this idea. After months of preparation for a debt deal to no avail, Goldman Sachs, Blackstone, and Apollo publicly praised the $500 billion plan to finance its customers — customers who are the backbone of Nvidia's future needs. This bolster came just in time: just a few weeks ago, the AI-based hedge fund Situational Awareness suffered huge losses, and the shock wave spread to tech stocks and chip stocks.