AI financing driving private credit growth as refinancing risks rise, Moody's says

What happened

Moody's Ratings said high levels of borrowing to fund AI infrastructure is expanding private credit beyond traditional corporate lending. A wave of loans coming due between 2027 and 2029 could leave weaker borrowers struggling to refinance at higher interest rates.

Confirmed

Global impact / market context

AI borrowers that relied on deferred interest payments may face higher costs when loans come due, which means less cash available for building data centers and power. Weaker companies could struggle to borrow again, pressuring private credit lenders holding this debt.

Analyst inference

Moody's expects capital spending by the five largest US hyperscalers plus CoreWeave to reach nearly $1 trillion in 2027, funded by cash flows, debt and joint ventures. Recent stress in CoreWeave debt shows investors are increasingly concerned about heavily indebted AI borrowers.

Analyst inference

What to watch

1. About 17% of the 607 borrowers tracked by Moody's used payment-in-kind interest, which lets companies delay cash interest payments but adds to their debt burden and raises refinancing risk. Confirmed
2. Watch whether AI borrowers refinance loans due between 2027 and 2029, and whether lenders demand higher interest rates or tighter terms when those loans are renewed. Proposed
3. Moody's flagged circular financing risk, which means technology companies, chipmakers and AI developers invest in, lend to and buy from one another, potentially spreading losses across related firms if demand slows. Analyst inference

Evidence

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