Meta partners with PE giant Blue Owl to raise $27 billion for data center construction, with BlackRock being one of the largest investors

Meta collaborates with private equity giant Blue Owl Capital to raise $27 billion through bond issuance for the construction of data centers. This transaction sets a record for the largest private bond issuance, highlighting the immense capital demand for AI infrastructure development.

On October 21, media reports indicated that BlackRock, the world's largest asset management company, subscribed to over $3 billion in bonds, becoming one of the largest investors in the project. The bonds were arranged for issuance by Morgan Stanley and received an investment-grade rating of A+ from S&P Global, but the yield reached as high as 6.58%, close to junk bond levels.

The project, named Hyperion, is 80% owned by Blue Owl and 20% owned by Meta. Reports suggest that through the joint venture arrangement with Blue Owl, Meta was able to place this financing off its balance sheet, a structure similar to Intel's financing model with Apollo Global Management for its $11 billion chip factory in Ireland last year.

The Largest Private Bond Deal in History

The Hyperion data center project completed financing through the issuance of $27 billion in private bonds, setting a record for the largest single transaction in the private bond market.

According to reports citing informed sources, bond giant Pimco is the largest buyer, with a subscription amounting to $18 billion. BlackRock subscribed to over $3 billion, becoming the second-largest investor.

S&P Global Ratings assigned the bonds an A+ investment-grade rating, primarily based on Meta's role as a project supporter. However, the 6.58% issuance yield is significantly higher than the conventional level for bonds with similar ratings, closer to the pricing range of high-yield bonds, reflecting investors' demand for a risk premium on data center projects.

The bonds were issued at a par value of $1.00 last week and were valued at $1.102 by Monday, indicating that the initial investors in the transaction have already realized substantial paper gains.

BlackRock ETF Participation

Some of BlackRock's bond subscriptions flowed into its ETF products. According to fund disclosure documents, an actively managed high-yield ETF purchased Hyperion bonds last week, with a holding value of $2.1 million as of Monday, making it the largest single investment in the fund.

Additionally, a total return ETF under BlackRock holds approximately $1.2 million in these bonds, while a loan ETF holds about $651,000.

After the 2008 financial crisis, BlackRock bet that ETFs would replace mutual funds as the preferred tool for institutional and individual investors, a strategy that has helped it grow into the world's largest asset management company.

Its iShares series alone manages over $5 trillion in assets. ETFs trade on exchanges like stocks and enjoy specific tax advantages.

Off-Balance-Sheet Financing Model

Reports citing informed sources indicate that by forming a joint venture with Blue Owl to issue bonds, Meta was able to arrange this financing off its balance sheet. This structure allows Meta to advance large-scale data center construction while avoiding a direct increase in its balance sheet debt burden Last year, Intel adopted a similar model, partnering with Apollo Global Management to finance an $11 billion chip factory in Ireland.

Such off-balance-sheet arrangements are becoming a new option for technology companies to finance capital-intensive AI infrastructure projects, meeting huge funding needs while maintaining flexibility in financial statements