Moody's: AI financing drives growth in private credit, refinancing risks on the rise.

According to a Reuters report, Moody’s Ratings said Tuesday that massive borrowing to fund artificial intelligence (AI) infrastructure is pushing the private credit sector beyond traditional corporate lending. However, a large volume of loans will mature in the coming years, leaving weaker borrowers facing potential refinancing difficulties. Specifically, AI financing needs have expanded beyond data center construction to areas including land, power, semiconductors, graphics processing units (GPUs), and tensor processing units (TPUs). Moody’s projects that total capital expenditures of the U.S.’s five largest hyperscale cloud service providers and CoreWeave will reach nearly $1 trillion by 2027, with funding sources including operating cash flow, debt, and financing structures such as joint ventures and special purpose vehicles (SPVs). Moody’s warned that loans maturing between 2027 and 2029 will test weaker borrowers’ ability to refinance amid higher interest rates. Of the 607 borrowing firms tracked by Moody’s, around 17% use payment-in-kind (PIK) interest—a practice that defers cash interest payments and adds accrued interest to debt, further increasing their debt burden. Additionally, Moody’s flagged risks related to “circular financing”: as cross-investments, lending, and procurement between tech firms, chipmakers, and AI developers grow, these interconnected exposures could deteriorate simultaneously if the industry enters a downturn.