Broadcom Rises Over 3% Premarket: Wall Street Banks and Blackstone Partner to Provide $63 Billion Financing to Support Anthropic's Purchase of Broadcom AI Chips

TradingKey - In U.S. pre-market trading on October 27, as of press time, Broadcom (AVGO) shares rose approximately 3.32% to $340.1. On October 26, Bank of America (BAC), Blackstone (BX), Citigroup (C), and Morgan Stanley (MS) announced a $63 billion financing arrangement.

[Source: TradingView]

Under the agreement, a newly established special purpose vehicle will purchase Broadcom's XPU artificial intelligence (AI) accelerators and networking equipment and lease them to Anthropic, with equipment deliveries expected to begin in 2027.

While the deal helps support Anthropic in expanding its computing scale, the residual value support provided by Broadcom, along with additional financing guarantee arrangements disclosed by media, have also drawn attention to its potential financial risks.

Moody's credit rating division noted that Broadcom currently has strong credit strength, but if it participates in multiple similar financing transactions in rapid succession in the short term, the financial risks it assumes could rise further.

How $63 Billion Funding Supports Anthropic’s Purchase of Broadcom AI Chips?

According to a Broadcom announcement, the transaction will be executed through a newly established special purpose vehicle (SPV). Bank of America, Citigroup, and Morgan Stanley are responsible for arranging the first-lien financing, while Blackstone will provide the agreed second-lien financing.

The SPV will use the financing to purchase Broadcom's XPU AI accelerators and networking equipment, and then lease the equipment to Anthropic.

According to Reuters, the first-lien financing is approximately $43.5 billion, accounting for 69% of the total financing. Broadcom will also provide equipment residual value support equivalent in scale to the first-lien financing to mitigate the risk of a decline in the future value of the relevant equipment.

This arrangement is part of the computing power collaboration agreement previously announced by Broadcom. Notably, the $63 billion figure represents the scale of the financing transaction and does not mean Broadcom has recognized an equivalent amount of revenue or profit. Actual revenue remains dependent on equipment procurement, delivery, and relevant accounting recognition arrangements.

In addition, an IPO registration filing submitted by Anthropic to the U.S. Securities and Exchange Commission (SEC) on October 26 disclosed that the company signed a five-year master equipment lease agreement with Broadcom, under which total rent payments over the lease term will be approximately $161.2 billion, excluding interest.

This agreement reflects Anthropic's commitment to long-term AI computing resources and provides a contractual foundation for the delivery of Broadcom's relevant AI accelerators and networking equipment.

What Risks Do Broadcom's Residual Value Support and Default Protection Bring?

Broadcom's equipment residual value support equals the size of the first-lien financing. This means that if the equipment depreciates in the future, Broadcom may have to absorb the corresponding losses. However, residual value support is not an unconditional guarantee for the entire $63 billion in financing, and the actual liability remains subject to contractual terms.

According to a report by The Wall Street Journal on October 27, negotiations for this financing were once stalled due to rising interest rates and banks' concerns over excessive risks in the AI sector.

Broadcom CEO Hock Tan made concessions to push the deal through, including accepting higher interest rates and providing protections related to a default by Anthropic. The specific scope and potential financial impact of these protections still need to be evaluated based on the full agreement.

For investors, Anthropic's ability to make lease payments, the future residual value of the equipment, and financing costs are key factors in assessing the risks of this transaction. If Anthropic defaults and the proceeds from the liquidation of the equipment are insufficient to repay the debt, Broadcom could face additional financial losses.