Can't tolerate the bond market anymore? Moody's warns: U.S. tech giants use accounting standards to "hide hundreds of billions of dollars in potential liabilities"

The “gray area” in US Generally Accepted Accounting Principles (GAAP) is allowing tech giants to make hundreds of billions of dollars in potential debt “disappear” from their balance sheets while aggressively building AI data centers.

According to a February 23 report by the Financial Times, Moody’s, the international credit rating agency, issued a warning that current US accounting standards have “limitations” that enable large technology companies to hide hundreds of billions of dollars in potential liabilities amid the AI data center construction frenzy. This loophole could make it difficult for investors to see the true financial health of these tech giants.

Moody’s analysts pointed out that, due to regulatory restrictions, AI companies may not need to account for the costs of renewing data center leases nor for the costs of not renewing, even though both figures could be enormous. Moody’s warned that “disclosure may not present the full picture,” and the current accounting debt figures “are unlikely to reflect certain reasonable future scenarios.”

Accounting Standards’ “Blind Spot”

As companies like Meta and Oracle increasingly use special purpose vehicles (SPVs) primarily funded by external investors to build data centers, this off-balance-sheet financing model is drawing close attention from credit markets. For rating agencies and many bond investors, the long-term costs of leasing back data centers from these entities essentially amount to debt.

However, Moody’s found that companies are cleverly designing lease terms to make these liabilities “invisible” on the books.

Specifically, companies sign relatively short-term leases and promise to pay compensation—known as residual value guarantees (RVG)—if they do not renew, leading to a decline in the data center’s value.

Under US GAAP:

• Renewal costs are recognized only if they are “reasonably certain,” generally considered to be at least a 70% likelihood.
• Compensation costs for RVGs are recognized only if they are “probable,” meaning more than a 50% chance.

This creates a perfect “vacuum.” Analysts David Gonzales and Alastair Drake explained:

“Deciding whether to extend a lease depends on whether the large enterprise is willing to make additional hardware investments… Strict application of these guidelines could result in many lease renewals falling below the ‘reasonably certain’ standard.”

Because key technical components of data centers typically have lifespans of only 4 to 6 years, companies can argue that renewing is not “reasonably certain” and that triggering the guarantee is not “probable.” The result: two huge potential expenses are not recorded as liabilities.

Meta’s $28 Billion Hidden Guarantee

Using the largest private credit data center deal to date as an example, Moody’s detailed this risk.

Meta plans to build the Hyperion facility in Louisiana, placed within a special purpose vehicle called Beignet Investor, financed by Blue Owl Capital. Meta will lease the facility to this entity, initially for four years, with a 20-year renewal option.

Crucially, Meta also provides a guarantee of up to $28 billion, promising compensation if property values decline.

However, these staggering figures only appear in the footnotes of Meta’s latest annual report; no related liabilities are recorded on the company’s balance sheet. Meta states in the report: “As of December 31, 2025, the payment of residual value guarantees (RVGs) is not considered ‘probable,’ and therefore no liability has been recognized.”

This approach makes hundreds of billions of dollars of potential cash outflows “invisible” on the financial statements, despite their significant impact on the company’s future financial flexibility.

Moody’s Response: Manual Adjustments

In response to the increasingly common off-balance-sheet financing methods, Moody’s said it will adopt stricter assessment standards.

The agency explicitly stated that when determining credit ratings for tech companies, it will conduct its own probability assessments to decide which future liabilities should be considered.

Moody’s said: “If we believe that reported lease liabilities underestimate potential cash outflows, we may make quantitative debt adjustments.” The agency added that these adjustments will “consider the possible exercise of renewal options or RVGs, or both.”

This means that even if tech giants legally hide debt on their financial statements, they may still face the reality of being viewed as having actual debt by rating agencies when seeking bond market financing. This could potentially impact their credit ratings or borrowing costs.

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