So… ‘vanity’ ratings… what’s the point of them then.
So it's probably valuable to retain that credit rating.
The real issue here is how simple it is to game the rating agency in this way and how the market allows Meta to "launder" this activity through the ratings agency.
This is, in fact, a fairly close analogue to the housing crisis and the ratings laundering that was done with the CDOs[1]. The difference is, instead of drilling down to thousands of mortgages - each with different characteristics - you really just drill down to Meta ... which might not be too risky ...
[1] https://en.wikipedia.org/wiki/Collateralized_debt_obligation
…someone needs to shake the tree and see what falls out, like Peter Thiel did for SVB.
So if a company drops their AA rating it could force them out of a lot of funds and investment vehicles.
This complicated vehicle where the debt and assets are in another LLC isn’t actually tricking anyone in finance. If you’re reading about it from blogs then it’s already common knowledge. The structure isn’t actually a one way trick, it’s a set of tradeoffs and protections for the company. They probably could have achieved better terms going direct but with higher risk.
They will also have to pay a premium and give up more for debt to the LLC because the lenders know this.
The same is true for Meta.
The finance world isn’t blind. None of us hear are stumbling upon hidden knowledge that the lenders didn’t already have.
Surely the ratings agency people are "in finance"? Or are they in on the game, and sliding their way back to 2008, writing ratings for "deals structured by cows"?
The mistake throughout this comment section is to assume that the debt is functionally equivalent to Meta haven taken it on themselves, consequences and all. It's not.
Putting things in an LLC vehicle provides some protections. Both for large corporations and you and me as individuals. However if you put an asset in the LLC the lenders also know that those protections exist and will adjust terms accordingly. Meta has taken this into account, found some favorable terms, and pursued that direction.
The narrative that this is a secret loophole that lets them take on debt but also not take on debt is the substack authors doing their thing to make it more sensational than informative.