The off balance sheet story

Please take a look closely at the chart below.

What you’re seeing isn’t just “capex.” It’s a dense, circular financing structure: SoftBank → OpenAI → Microsoft/Oracle/Amazon/Google → Nvidia/AMD/CoreWeave/Broadcom → back into capacity commitments, warrants, revenue shares, capacity buy-backs, and vendor financing.

Off-balance-sheet commitments alone now sit at roughly $3.8 trillion for the hyperscalers — up ~$700 billion in a single quarter. Add the $250 billion of on-balance-sheet IG debt issued by the same ecosystem and the duration risk (DV01) created in Q3 exceeded total Treasury issuance by ~25%.

This is classic circular financing with modern characteristics:

•  Customer prepayments and multi-year capacity guarantees that look like revenue but function like debt.

•  Vendor financing and capacity buy-backs that keep the demand signal alive.

•  Heavy use of special-purpose vehicles, leases, and take-or-pay structures that sit off the balance sheet — for now.

Why this matters for rates, CDS, and ratings

1.  Yields

When private credit demand of this magnitude competes with the Treasury market for duration, the risk-free curve does not get a free pass. The AI complex has become a material marginal buyer/issuer of long-duration risk. That helps explain the stubborn bid for higher yields even as growth narratives remain strong.

2.  CDS

Watch the single-name and index CDS of the pure-play neoclouds and the more leveraged suppliers first. Any perceived tightening in the circular flow (delayed capacity payments, renegotiated offtake, or a pause in vendor financing) will show up in CDS before it shows up in equity. Correlation risk across the web is high; a problem at one node quickly becomes a problem at several. It’s not only Oracle, most CDS are going up.

3.  Rating agencies

Sooner or later the agencies will have to decide how much of this off-balance-sheet web belongs in adjusted leverage metrics. If they start treating large portions of the capacity guarantees, take-or-pay commitments, and residual-value exposures as debt-like, several investment-grade credits could face pressure. The difference between “customer commitment” and “contingent liability” is not academic when the numbers are measured in hundreds of billions.

Circular financing works beautifully on the way up. It amplifies returns, accelerates capacity build-out, and creates the appearance of unstoppable demand. The historical record, however, is less kind once the music slows. The question is not whether this structure is creative. It is extremely creative. The question is how much of the $3.8 trillion+ web survives a stress test without forcing equity injections, covenant resets, or rating actions.

The chart is public information. The risk is not yet fully in the price.

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