Demand for capital to build out the data centers necessary for the Artificial Intelligence revolution is insatiable. In just the past few days, several multi-billion-dollar transactions have been announced. By the end of the decade, up to $4 trillion will be invested in U.S.-based AI infrastructure.
Blue Owl Capital is a relatively unknown finance company that has suddenly become an important part of the AI buildout. Blue Owl is an alternative asset manager that manages investments in private equity, real estate and infrastructure. Blue Owl, which typically provides financing to middle sized companies, has become a major player in financing AI data center infrastructure.
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Blue Owl is publicly traded, but the share price has been under extreme pressure recently because some of its investments have turned sour. Regardless, Blue Owl and other finance companies have demonstrated the capacity to access the trillions of dollars necessary to provide the computing resources for AI. This year, Blue Owl arranged a $14 billion credit package for Oracle and OpenAI to build a data center near Abilene, Texas.
Blue Owl is also financing Meta’s $30 billion data center to be built in Louisiana. But Blue Owl does more than raise capital. Through sophisticated corporate finance structures, Blue Owl reduces the cost of capital for AI hyper scalers such as Meta and Oracle. The cost of capital is extremely important as the largest U.S. technology companies are close to being constrained on AI investment. Today, about 94% of cash flow at companies such as Meta is being invested. Even modest reductions in the cost of capital matter.
How does Blue Owl reduce the cost of capital and facilitate the buildout of AI data centers?
For the Meta project in Louisiana, Blue Owl created a joint venture financing structure. Investment funds managed by Blue Owl own an 80% equity stake in the joint venture. Meta keeps a 20% minority interest. The joint venture issues its own debt to fund the data center. Because Meta is a minority partner, the $27 billion debt is not recorded on Meta’s balance sheet. This keeps Meta’s credit rating strong and reduces its future borrowing costs. The joint venture records the debt on its balance sheet.
When the data center begins operating, Meta will enter into a long-term lease. The lease payments will be recorded as operating expenses rather than capital expenditures or debt on Meta’s balance sheet, which helps preserve its credit rating, increases financial flexibility and reduces Meta’s overall cost of capital. The joint venture for the Louisiana data center will have an A+ investment grade rating. Meta provides a residual value guarantee. This guarantee reduces risk for Blue Owl’s investors, such as PIMCO, one of the country’s largest fixed-income asset managers.
The corporate finance structure arranged by Blue Owl enables Meta to finance multi-billion-dollar AI data centers without taking on the associated debt. In effect, Meta can double its borrowing capacity through joint venture structures engineered by Blue Owl and other sophisticated financial institutions.
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There is more to the AI infrastructure build-out than just moving earth and constructing the data center buildings.
The U.S. has deep capital markets and enjoys a comparative advantage in creative corporate finance structures. These advantages will help the country remain the world leader in AI and AI computing power.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He publishes a daily Substack on financial markets, politics, and society. He can be followed on X and reached at [email protected].
