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 hide hundreds of billions of dollars in potential debt from their balance sheets while aggressively building AI data centers.

According to the Financial Times on February 23, Moody’s, an international rating agency, issued a warning that current US accounting standards have “limitations” that enable large tech companies to conceal 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 or the costs if they do not renew, even though both figures could be extremely large. Moody’s warned that “disclosure may not present the full picture,” and current accounting liabilities “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. In the eyes of rating agencies and many bond investors, the long-term costs of leasing data centers back from these entities are essentially equivalent to debt.

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

Specifically, companies sign relatively short-term leases and promise to pay compensation (i.e., residual value guarantees, RVG) if not renewing causes the data center’s value to decline.

According to US GAAP:

• Renewal cost recognition: Renewal must be “reasonably certain,” generally considered to be at least a 70% likelihood.
• Compensation recognition: If a residual value guarantee is triggered by non-renewal, it is only recognized if it is “probable,” i.e., more than 50% likelihood.

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

Meta’s $28 Billion Hidden Guarantee

Moody’s used the largest private credit data center deal to illustrate this risk.

Meta plans to build the Hyperion facility in Louisiana, housed within a special purpose vehicle called Beignet Investor, financed by Blue Owl Capital. Meta will lease the facility to this entity, initially for 4 years, with a 20-year renewal option.

The key point is that 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 residual value guarantee (RVG) payments are not ‘more likely than not,’ and therefore no liabilities have been recognized.”

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

Moody’s Response: We Will Manually Adjust

In response to the increasingly common off-balance-sheet financing methods, Moody’s announced 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 identify potential future liabilities.

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 residual value guarantees (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, which could impact their credit ratings or borrowing costs.

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