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

Moody's Ratings revealed on Tuesday that the rapid growth of private credit is being fueled by substantial borrowing for AI infrastructure, extending beyond conventional corporate lending. According to the agency, AI financing now encompasses various sectors including land, power, semiconductors, graphics processing units, and tensor processing units.

The five largest US hyperscalers and CoreWeave anticipate capital spending of nearly $1 trillion in 2027, financed through cash flows, debt, and structures like joint ventures and special-purpose vehicles. However, Moody's warns that a wave of loan maturities due between 2027 and 2029 will challenge weaker borrowers to refinance at higher interest rates.

About 17% of the 607 borrowers tracked by Moody's employ payment-in-kind interest, which enables companies to postpone cash interest payments but increases their debt burden. A Reuters analysis earlier this year indicated that loan maturities for US business development companies will peak in 2028 and 2029.

Recent stress in CoreWeave's debt has heightened investor concerns about highly leveraged AI borrowers. Moody's also highlighted circular financing risks as technology companies, chipmakers, and AI developers increasingly engage in lending, investing, and purchasing from one another. This interconnectedness raises fears that correlated exposures could weaken simultaneously during an economic downturn.