Anthropic's $18 Billion Subordinated Notes at '10% Interest'—Two Fuses the Market Missed
Anthropic has launched a plan to raise a total of $60 billion to secure large amounts of Google's artificial intelligence (AI) chips, called tensor processing units (TPUs). As part of this plan, $18 billion in subordinated notes would carry an interest rate of more than 10%. This shocked financial markets around the world. US technology stocks fell, followed by semiconductor shares on South Korea's Kospi market. Some people even saw the move as a sign that the "AI bubble" was bursting or that Anthropic faced a risk of bankruptcy.
But the 10% figure does not show Anthropic's actual risk of failing to repay its debt. A closer look shows that the high rate mainly comes from how the private-credit deal is set up and how much money is involved, rather than from a poor credit rating.
5% US Treasury yield + extra cost for a BB rating + cost of selling private loans
Anthropic has a BB credit rating. The yield on five-year US Treasury bonds is currently about 5.0%. Investors also ask for an extra 195 basis points (1.95 percentage points) to hold corporate bonds rated BB. Together, these add up to 6.95%. Another 300 basis points (3.00 percentage points) are added because investors may find it hard to sell a private loan before it ends. These loans are arranged directly between parties instead of being traded on an exchange. Adding these amounts gives 9.95%. In other words, adding the extra cost of a private loan to the market's average rate brings the total close to 10%, leaving little room for an extra charge based on the risk of default.
A loan with a similar structure was issued four months earlier. In June, Anthropic raised $4.4 billion in subordinated debt through its "Big Sky" plan at an interest rate of 8.5%. In just four months, the rate rose by 150 basis points (1.5 percentage points). But most of this increase came from a rise in the benchmark rate for BB-rated companies, which went from 5.81% to 6.95%, an increase of 114 basis points. Factors specific to Anthropic account for only about 36 basis points of the rise. That is why analysts say much of the increase is a "large-order premium": the deal grew 4.3 times in size, from $4.4 billion to $18 billion.
Compared with ordinary private funds managed by Blackstone, a 10% rate is actually on the low side. Blackstone's main BCRED fund yields 9.0–9.1%, while BXSL yields about 9.4%. However, most of these funds' assets are senior secured debt, which gets paid back before other debt, and their investments are spread across different borrowers. Anthropic's loan is subordinated, meaning it is last in line for repayment, and puts $18 billion into one company. Even so, the difference between the rates is only 0.6–1.0 percentage point.
The real fear is CoreWeave—with a CDS premium of 1,194bp
Another company's credit crisis, which broke out around the same time, helps explain why the market reacted so strongly. The five-year credit default swap (CDS) premium for AI cloud company CoreWeave recently jumped to 1,194 basis points. This meant the market was effectively pricing in a 64% chance that the company would fail to repay its debt within five years. CoreWeave bonds issued in June had a yield of 9.675% when they were sold. This week, their yield rose to about 15% in the market outside exchanges. At one point, the yield on bonds due in 2032 reached 14.8%, far above their coupon rate of 9.625%.
The reason CoreWeave's cash flow is under pressure is clear. In the second quarter, its operating activities brought in $679 million in cash, while adjusted spending on capital investments reached $9.4 billion. Net interest costs alone were $640 million. The company must spend money before its new data centers begin operating. At the end of June, it had about $35 billion in debt and $16.5 billion in lease obligations.
Anthropic's financial position is different. Its third-quarter revenue was $16.8 billion, up 45% from the previous quarter, and it reported an adjusted operating profit for two quarters in a row. At the end of June, Anthropic itself had no debt that required interest payments. Its chip purchases are funded through project financing arranged by partner companies and special purpose vehicles (SPVs), which are separate legal entities set up for specific projects.
| Category | Anthropic subordinated notes | CoreWeave corporate bonds |
|---|---|---|
| Rate/yield | Low 10s% (issuance terms) | Around 15% off-exchange |
| CDS premium | Not applicable | 1,194bp |
| 5-year default probability (market estimate) | - | 64% |
| Latest quarterly results | Revenue $16.8 billion, adjusted operating profit | Operating cash flow $679 million, capex $9.4 billion |
| Credit rating | BB (KBRA BB+) | Below investment grade |
Note: CoreWeave figures are based on second-quarter results and recent prices quoted in the market outside exchanges.
The two remaining risks: selling the debt to other investors and securing enough power
If the interest rate itself is within a normal range, investors should watch two other risks. The first is whether Blackstone can successfully sell parts of the deal to other investors, a process called syndication. Of the $18 billion, Blackstone plans to provide half—$9 billion—from its own money. The other $9 billion must be sold to other investors. But requests to withdraw money from US private-credit funds have risen quickly recently, and some observers say finding enough buyers may be difficult. If the debt cannot be sold as planned, the entire $60 billion fundraising plan could run into trouble.
The second risk is the limits of physical infrastructure. According to a Financial Times report, more than 47 major US data-center projects have been delayed or canceled this year. Reported causes include fears of power outages because of huge electricity needs, shortages of water for cooling equipment, and opposition from local residents who are concerned about noise from backup generators. Microsoft also canceled a lease with UK data-center company Enscale after problems with the power grid at one site made it difficult to secure electricity before the 2030s. Investment bank Bernstein estimated that only 35% of planned projects would be completed.
The Google TPUs Anthropic hopes to secure through $60 billion in borrowing cannot operate without data centers that have enough electricity and large cooling systems. If the chips cannot be put to use on schedule, training next-generation AI models will be delayed, while the company will still have to pay roughly 10% interest on the borrowed money. Critics warn that money raised in financial markets could hit a wall because the physical infrastructure is not ready, making the crisis worse.
The market shock can already be seen in bond prices. During the first two days of this week, the extra yield investors demanded on high-yield AI-related bonds rose by 25 basis points, reaching 360 basis points above US Treasury yields. Over the same period, the extra yield on high-yield bonds unrelated to AI rose by only about 2 basis points. The pressure was concentrated among borrowers whose credit depended on newer cloud companies and companies developing advanced AI models, as well as some bonds used to fund data-center projects. The extra yield on investment-grade AI-related bonds rose by only 3 basis points.
This year, the US investment-grade and high-yield markets have issued more than $106 billion in financing for data centers and related projects. That is nearly three times last year's total of $37 billion. The forecast for next year is $300 billion, and that estimate could rise further. Some of Anthropic's new debt is scheduled to be listed on the institutional 144A market after the money is actually drawn in 2027, so the final cost of borrowing has not yet been fixed.