Moody's warns of AI debt maturity surge, 'circular financing' risks within 3 years

A wave of large-scale fundraising to build AI infrastructure is driving growth in the private credit market, but a concentration of loan maturities over the next few years could sharply increase the debt-repayment burden on companies, Moody's warned. The ratings agency also raised concerns that an expanding "circular financing" structure — in which AI companies invest in and lend to one another — could cause the financial health of interconnected firms to deteriorate simultaneously during an economic downturn.

Moody's laid out those risks in a recently published report on private credit risk and AI infrastructure financing, according to Reuters on Tuesday (local time).

The agency said demand for AI financing has now spread well beyond data center construction to encompass land, power, semiconductors, and processors including GPUs and tensor processing units.

Moody's projected that capital expenditure by the five largest US hyperscalers and neo-cloud provider CoreWeave could approach $1 trillion in 2027.

The agency said the funding needed would likely come from a mix of free cash flow, loans or corporate bond issuance, co-investment with outside investors or partners, and the establishment of special purpose vehicles.

Moody's said a surge in loans maturing between 2027 and 2029 would test whether financially weaker companies can refinance at higher interest rates.

Among the 607 borrowers Moody's tracked, about 17 percent used payment-in-kind structures that allow cash interest payments to be deferred — an arrangement that increases a company's overall debt burden over time.

A Reuters analysis earlier this year found that loan maturities at US business development companies are set to peak in 2028 and 2029.

Moody's said CoreWeave's debt load, which has been a source of recent market unease, reflects growing investor concern about highly leveraged AI borrowers.

The agency also warned that circular financing risks are emerging as technology companies, chipmakers and AI developers increasingly invest in, lend to and purchase from one another, adding that the related debt of these interconnected entities could weaken in tandem during an economic downturn.