BlackRock secures $12 billion for Meta's data center in El Paso.

      On Monday, JPMorgan and Morgan Stanley began presenting a bond sale to investors, aiming to raise at least $12 billion, as reported by The Wall Street Journal. The funds will be utilized to construct a Meta data center in El Paso, Texas. The construction is key to the story.

      Ownership structure

      BlackRock, along with its infrastructure and private-credit divisions, holds 80% of the approximately one-gigawatt project. Meta, the entity that will operate the AI within the facility, retains only 20% and will lease the campus back. The debt is associated with a BlackRock-controlled entity rather than Meta itself.

      This arrangement keeps a significant portion of the costs off Meta’s financial statements, recorded as rent rather than capital expenditures. This is similar to an off-balance-sheet maneuver identified in a recent Nikkei study, which estimated $1.65 trillion across the five largest tech firms in the US.

      Meta's precedent

      Meta has engaged in similar arrangements before. Its Hyperion site in Louisiana operated through a joint venture where Blue Owl owned 80% and Meta held 20%. This venture issued $27 billion in bonds last year, marking the largest private-debt agreement on record, with BlackRock purchasing over $3 billion of them.

      El Paso follows the same template. Additionally, Meta has recently agreed to lease a project in Shippingport, Pennsylvania, developed by Aligned, a company that BlackRock acquired for $40 billion. The pattern remains consistent: BlackRock owns the infrastructure, while Meta pays for the computing resources.

      Fink's strategic approach

      For Larry Fink, this arrangement is a significant return on investment. In recent years, the asset manager, managing $15 trillion, has spent around $25 billion acquiring two private-market firms, Global Infrastructure Partners and HPS, as reported by Bloomberg. Both firms are now part of BlackRock and are supporting the El Paso project.

      This evolution transforms an index fund giant into both owner and operator. In this transaction, it fulfills both roles simultaneously: originating the asset and selling the debt tied to it. Fink mentioned to analysts last week that the two divisions were collaborating on the origination aspect.

      The potential drawback

      The inherent risk lies in the nature of off-balance-sheet AI deals. Although the bonds are long-term, the components within the building may depreciate significantly within a few years, and the leases reportedly have shorter terms than the campuses they finance. BlackRock's strategy relies on sustained demand for AI and on Meta's rental payments being adequate to cover the expenses.

      Moreover, consolidating much of the AI infrastructure within a single company raises concerns. Competitors like Blue Owl and Blackstone have been at the forefront of the largest data-center financing to date, causing increasing chatter about a potential bubble. The El Paso campus is expected to become operational in 2028.