Meta and private equity giant Blue Owl have teamed up to raise $27 billion for data center construction, with BlackRock as one of the largest investors.

Meta and private equity giant Blue Owl have raised $27 billion through a private bond issuance to build data centers, setting a record for private bond issuance. BlackRock subscribed to over $3 billion, becoming the second largest investor; bond giant Pimco took the lead with $18 billion. The bonds received an A+ rating from S&P, but the yield was as high as 6.58%, approaching junk bond levels.

Meta partnered with private equity giant Blue Owl Capital to raise $27 billion through a bond issuance for data center construction. This transaction set a record for private bond issuance and highlights the enormous capital demand for AI infrastructure development.

On October 21, media reports indicated that BlackRock, the world's largest asset management company, subscribed to over $3 billion in bonds, becoming one of the project's largest investors. The bond, arranged by Morgan Stanley and rated A+ by S&P Global Ratings, carries an investment-grade yield of 6.58%, nearing junk bond levels.

The project, called Hyperion, is 80% owned by Blue Owl and 20% by Meta. Meta reportedly managed the financing off-balance sheet through a joint venture with Blue Owl, a structure similar to Intel's partnership with Apollo Global Management last year to finance an $11 billion chip factory in Ireland.

Largest Private Debt Deal Ever

The Hyperion data center project was financed through a $27 billion private bond issuance, setting a record for the largest single transaction in the private debt market.

According to reports, citing sources familiar with the matter, bond giant Pimco was the largest buyer, subscribing to $18 billion. BlackRock subscribed to over $3 billion, making it the second-largest investor.

S&P Global Ratings assigned the bond an A+ investment-grade rating, primarily based on Meta's role as project backer. However, the 6.58% issuance yield is significantly higher than typical for similarly rated bonds and closer to the pricing range of high-yield bonds, reflecting investors' demand for a risk premium for data center projects.

The bonds were issued last week at 100 cents on the dollar and were valued at 110.2 cents on the dollar by Monday, meaning initial investors have already realized significant paper gains.

BlackRock ETFs Enter the Market

Some BlackRock bond subscriptions went to its ETF products. According to fund disclosures, an actively managed high-yield ETF purchased Hyperion bonds last week, with a position valued at $2.1 million as of Monday, making it the fund's largest single investment.

In addition, a BlackRock total return ETF holds approximately $1.2 million of these bonds, and a loan ETF holds approximately $651,000.

After the 2008 financial crisis, BlackRock bet that ETFs would replace mutual funds as the preferred tool for institutional and individual investors, a strategy that helped it grow into the world's largest asset management company.

Its iShares funds alone manage over $5 trillion in assets. ETFs trade like stocks on exchanges and enjoy certain tax advantages.

Off-Balance Sheet Financing Model

The report, citing sources familiar with the matter, revealed that Meta was able to arrange the financing off-balance sheet by issuing bonds through a joint venture with Blue Owl. This structure enables Meta to advance its large-scale data center construction without directly increasing its debt burden.

Last year, Intel employed a similar model to partner with Apollo Global Management to finance an $11 billion chip factory in Ireland.

These off-balance sheet arrangements are becoming a new option for technology companies to finance capital-intensive AI infrastructure projects, meeting the substantial funding needs while maintaining financial flexibility.