Anthropic may receive a "junk" credit rating after its IPO. What does that mean?

Private equity giant Blackstone has warned clients that Anthropic, the world’s most valuable AI startup, may not receive an investment-grade credit rating shortly after its initial public offering, as previously expected, sources told the Financial Times. It is more likely that leading rating agencies will assign the company a relatively “high” rating, but still within the speculative category, the sources told the publication. The lack of a strong credit rating will make it more difficult for Anthropic to finance large-scale investments in artificial intelligence.

Blackstone has informed investors participating in a new $63 billion deal to finance chip purchases for Anthropic that, following its IPO, the startup will most likely receive a speculative-grade credit rating from leading rating agencies, according to Financial Times sources. Blackstone is the anchor investor in the chip-purchase deal and is working with the banks that provided the initial financing to help them sell the debt securities to other investors.

According to the FT, bankers working with Anthropic and its competitor OpenAI have already tried to persuade the major credit rating agencies to assign investment-grade ratings to the AI developers following their IPOs. Blackstone itself has told its investment partners in recent months that it expects Anthropic to receive an investment-grade rating by the end of the year, the FT notes. However, the company has recently revised its expectations. According to the publication’s sources, Blackstone now considers it more likely that the company will receive a BB rating or higher, based on preliminary assessments by leading credit rating agencies.

On Monday, Anthropic filed for an initial public offering (IPO), which could become the largest in history as early as next month. In its prospectus, the AI developer outlined plans to spend more than $800 billion on computing infrastructure by 2045.

Obtaining an investment-grade credit rating is crucial to realizing these plans, as it will allow Anthropic to raise debt at lower interest rates, the FT explains. Furthermore, the lack of such a rating will limit Anthropic’s pool of potential lenders. Many insurance companies and pension funds are prohibited from investing significant amounts in debt issued by borrowers with speculative credit ratings.

Anthropic currently has more than $112 billion in cash and cash equivalents. Investors expect the company to raise another $100 billion or so during its IPO, according to the FT.

This week, Wall Street banks finalized the Project North Star deal, which provides financing for Anthropic to lease 1.5 GW of computing power based on Google’s semiconductors, according to the FT. More than $42 billion in senior debt under this deal is secured by guarantees from Broadcom, which is developing these chips in partnership with Google and holds an investment-grade credit rating. An additional $18 billion in subordinated debt is secured by Anthropic’s lease payments.

Institutional investors prefer senior debt because, in the event of a borrower’s default, claims on such debt are satisfied before those of junior debt creditors, the FT explains. Therefore, Broadcom’s high A-rated credit rating became a key factor in enabling Anthropic to secure financing, the publication emphasizes.

Blackstone funds have invested $9 billion in subordinated debt as part of this deal, hoping to earn an attractive return of over 10%, according to the FT. The $18 billion in subordinated debt under Project North Star—whose creditors are more exposed to the risk of an Anthropic default—received a BB+ rating with a positive outlook from Kroll Bond Rating Agency (KBRA), the FT reports. This represents a slight improvement compared with a similar deal, Project Big Sky, which took place four months ago, when the agency assigned the debt a rating with a stable outlook, the publication notes. According to FT sources, Morningstar DBRS has also assigned a BB rating to Project North Star’s subordinated debt.

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