Anthropic assigned highest junk credit rating in June
ft.com
ft.com
>However, Anthropic’s disclosure to KBRA excluded several important financial metrics, including free cash flow and earnings before interest, taxes, depreciation and amortisation. Credit rating analysts had to come up with their own estimates based on assumptions, the documents show.
>Given the limited information, KBRA produced a “risk score” to assess Anthropic’s creditworthiness rather than the traditional full financial models.
This and the fact they went to a small ratings agency does not inspire confidence in the rating.
Why didn’t they give them the info? They either withheld it or don’t have it. Both make them look bad.
that's a bigger red flag. there may be reasons (bad) to not give them all the info, but going to a smaller agency is the largest of red flags when you are that big of a company.
Obviously a financially rational person wouldn't lend money with worse returns it can get from the government risk-free as that would be charity, hence these are considered 'junk'.
Then you have been misinformed. Rated bonds by and large fail at the rating predicted by the big three [1].
[1] https://www.ft.com/content/d97e1e86-1e90-4c5c-b972-052d43a36...
...and score still showed "high probability of being junk"?
All ratings agencies have their own scales, but broadly all ratings fall into one of two overarching categories, investment grade vs. junk.
The article explains that the rating ANT received was the highest within the junk range. So “highest junk rating” means within the junk category, it’s in the best sub-area. In other words, it’s just scratching below the investment grade rating.
This is important for institutional investors who can only buy investment grade, meaning if they can improve even one single grade up, they get access to a lot more debt.
I believe some institutional investors have policies allowing some purchasing of 'highest junk' as well. Depends on the fund, etc.
Rating agencies will absolutely refuse to rate if provided insufficient information.
If you look at 10-year default rates for BBB-rated paper from the big three plus EJR, AM Best, KBRA and DBRS, you find everyone tightly clustered in the 1 to 2% range except KBRA, who was up at 4% [1]. That suggests they've historically rated junk bonds as barely investment grade. I'm assuming that's what Anthropic was hoping for.
[1] https://www.ft.com/content/d97e1e86-1e90-4c5c-b972-052d43a36...
Go a step down to BB and you’re talking like one in twenty offs of default. (Unless it’s DBRS, in which case it’s one in three.)
Note that default doesn’t mean you lose everything. Conventional recovery estimates are 40%. But the idea of investment grade is you can basically assume that after taking into account interest paid on a portfolio, you should never lose capital.
...
"If we don't work with them they will go to our competitors. Not our fault. Simply the way the world works."[1]
[1] https://www.youtube.com/watch?v=mwdo17GT6sg @ 3:31
"The rating action, which has not previously been reported, shows Anthropic is close to achieving the investment-grade status that would allow the start-up to lower its borrowing costs and tap a wider pool of institutional investors including life insurance companies and pension funds.
Bankers for Anthropic and rival OpenAI have lobbied the largest rating agencies to grant the AI labs investment-grade ratings once they go public."
"The rating action, which has not previously been reported, shows Anthropic is close to achieving the investment-grade status that would allow the start-up to lower its borrowing costs and tap a wider pool of institutional investors including life insurance companies and pension funds.
Bankers for Anthropic and rival OpenAI have lobbied the largest rating agencies to grant the AI labs investment-grade ratings once they go public."
Bonuses (owed under preexisting agreements) were an unfortunate necessity. The USG effectively nationalized AIG because it was determined to be too systemically important to be allowed to chaotically fail. So, the new owners needed to retain the employees necessary to continue its operations. To do so, they had to honor employee compensation agreements.
This turned out to be a wise move as the American taxpayer ended up turning a profit on the AIG bailout.
And it wasn’t as though the bonuses were uncontroversial. They were possible bc of loopholes in the bailout legislation. But the government was furious and, alongside public outrage, pressured the executives to give the back bonuses. The house of representatives even passed a bill to tax the bonuses at 90%. Many did voluntarily give them back.
At that point, compensation agreements with a previously solvent employer are... negotiable.
There's no "had to" in that scenario.
The government wanted to retain the people who knew how to run the thing. Those people wanted the most money they could get.
The deal could have been whatever the two of them struck -- and the public anger was/is that historically the government hasn't bargained very hard against the leadership of companies in that scenario.
If your company can afford bonuses after getting bailed out, then you never needed to be bailed out.
Bankruptcy court would almost never allow bonuses to be paid out during any sort of BK.
And, once again, the taxpayer turned a tidy profit on the bailouts.
It is not like Anthropic was once this stable investment grade company that is now shopping around because the debt is being downgraded.
The headline is just click bait.
As in "main ratings agencies" see no reason to bother
I’d reserve judgement until i see them report more detailed financials and the big ratings agencies step in with assessment.
Like if there is a significant risk of bankruptcy then there must on the other side of the scale be a possibility of making bank like you have with stock or derivatives.
Credit worthiness of each mortgage wasn't the issue with mortgage-backed securities. It was that low value mortgage-backed securities were repackaged into a basket with a mix of securities and given a higher credit rating than what Subprime would have gotten on their own.
This repackaging is absolutely going to happen again with GPUs. If there are GPUs of different generations within the same security, it's already happened.
This is fine. Tranching is fine. It works today, it worked in 2008 and it's based on the same mathematics as portfolio theory. (A physical representation would be a dam. You can turn volatile rivers into predictable flows if you hold a bunch in reserve and then let a small amount off the top.)
Nobody knew that for certain, however, and that was a problem if you needed cash today but verifying the underlying mortgages would take months of work. (Some AAA-rated CDOs defaulted though they all paid out in the end. There has never been a AAA-rated CLO default since like the 1990s.)
Not quite. They blew up because the opacity meant nobody could verify that their paper was safe. That made them unsaleable. In the end, AAA-rated crisis-era paper all paid out and almost all of them paid out on schedule. But that doesn't help you if you need to fire sell them today.
Put more succinctly, a lot of people assumed that because Treasuries are highly rated and super liquid all highly-rated paper could be counted on to be liquid. Lenders thought the safe paper was liquid. In the end it was just safe.
A link to the criminal mastermind that makes free speech possible here.
Let’s be clear about what this means: it gives them access to the corporate bond market. What they’re lobbying for is that pension funds, life insurance, etc., can take exposure to these companies. Suddenly the everyman, your mom and dad, have significant exposure to these companies and their circular financing deals without even knowing it. This is disgusting.
What a lot of people fail to realize is that the rules around IPOs changed since the dot com bubble. Previously, employees counted as shareholders and companies above a certain threshold of shareholders were required to IPO. This is why companies like Microsoft, Amazon, etc., had the majority of their growth while being publicly traded. This allowed the everyman with a brokerage account to participate in these gains.
These rules were essentially removed by Obama in 2012 through the JOBS act. What this means is that companies can stay private for a majority of their growth phase, which is why we’re seeing IPOs being floated with $2T dollar amounts on them. They’ve privatized the gains, and they only IPO once they want to cash out.
So let’s understand clearly what’s about to happen: early VC investors in oai/ant are going to make billions selling dogshit to your parents pension funds, your parents pension funds are run by idiots who will gleefully take the AI exposure and are legally allowed to take that AI exposure because the AI companies lobbied the credit rating agencies to allow it, and when the bills come next year and these companies are completely unable to meet their liabilities, your parents have to postpone their retirements or come back out of retirement to make ends meet.
It’s truly evil. I hope the employees at these companies with dollar signs in their eyes awaiting their multimillion dollar payoff understand the system that they’re participating in and how evil it is.
Point blank: 2008 was about manipulation of the credit rating agencies. This bubble will also be about manipulation of the credit rating agencies. Absolutely deplorable.
And no, just to nip this in the bud, AI isn’t a fad. It’s the most transformative technology of our lifetimes. It’s going to change everything. But that doesn’t have anything to do with chaos in financial markets or malinvestment during the gold rush. It has to do with whether these companies have any kind of moat and whether the billions being poured into current generation chips are going to depreciate over the timeframes that investors think they will.
First you say you don't like that they're accessing the corporate bond market, which is something all public companies can do.
Then you say they should've IPO'd earlier when they were even earlier stage and riskier .. which would allow them to issue bonds even earlier?
What is your position? Or are you complaining for the sake of complaining?
What I really want above all else is for credit rating agencies to not face pressure to rerate them favorably because they’re deemed too big to fail.
They can lobby all they want but until we see ratings agencies bending to their lobbying in the face of extreme scrutiny from anyone who would buy these corporate bonds I wouldn't go about worrying too much.
Now is when you make sure that the agencies are scrutinized before they give out inflated ratings, and make sure that this nobody agency's ratings aren't enough to get the stuff sold where it could do real damage.
You don't wait until the baby is drowning to worry, you worry when he's stumbling around next to the pool. Even then, you've gotten involved way later than you should have been.
We learned this lesson the hard way twenty years ago. If we let them invest in dogshit, and the credit rating agencies allow them to, they will.
When institutional investors lose, they’re not really risking their own money. They’re risking yours, or at least your cousins or your neighbors.
Basically when you invest at the peak of the bubble you're going to be hosed.
What's the problem? Fund managers—who are in a position to understand the risks more than your everyday investor—can decide if they want buy these bonds or not, just like any other public corporate bond.
2008 wasn't fund managers deciding all together in unison to buy bad mortgages. It was AAA ratings on diversified MBS that should have been rated much lower giving them cover to load up.
[1] https://www.wsj.com/livecoverage/stock-market-today-dow-sp-5...
[2] https://www.tradingview.com/news/seekingalpha:173ffc32a094b:...
[3] https://www.cnbc.com/2026/10/15/coreweave-credit-default-swa...
You can't really rip off bond-holders when you are not positive EBIT and EBITDA...
And if default risk rises, yes the value of those bonds will get crushed. But Id argue the value of equity will be more so - since they are not A) positive EBIT B) EBITDA
Those two numbers are variables that compose measures of default risk.
Calm your panties down. Kroll != S&P.
All this, so people like us can do a job that wasn’t that hard in the first place, and in reality was actually quite comfortable, for employers who are promising to lay us off, for productivity gains that aren’t even measurable.
The problem is OAI/Anthropic - but if OAI and Anthropic fail the whole thing comes apart. Goog, Meta etc will be fine as they had tremendous cash flow generating operations prior to datacenter offerings w.r.t LLMs.
I think the issues are:
1) that timeline has to line up with the broader macroeconomic factors (unlikely imo)
2) anthropic/openai/etc have to actually capture the value (unlikely given deepseek/glm/etc)
3) for all jobs to be automated, there needs to be a huge shift in the social contract and welfare state, which requires competent and functioning government (lol) and taxes on destruction of labor rather than labor itself (lmao) otherwise you get millions of unemployed people and a deeply unstable society, and a lot of blown up datacenters.
I think the value of AI is unlike anything that has come before, I just don't think the big players will necessarily be the ones capturing it. There will be a lot of spectacular implosions over the next couple years, and AI will continue to march along.
Hilarious
BB+ is technically junk. But the it is one notch from investment grade. Also Junk ratings are normal for young. So the framing is sensationalized.
"Growth has slowed" is technically true but misleading. Q2 to Q3 still went from $11.5bn to $16.8bn. And at those levels, it’s not wildly unexpected that it has to slow down.
And the bias is obvious when they write "Despite limited disclosures" which makes it sounds suspicious, when it’s normal thatrivate companies don't publish financials.
It’s also technical errors. Broadcom agreed to support the residual value of the chips, they did not guarantee the loan.
When journalists and news organizations are this terrible at basic reporting, Within their own specialized domain, it's hard to find sympathy for their complaints about AI-generated content taking over.
Edit: after another look I found that the agency that gave the rating also is a new small one with not very good record eighter (Kroll Bond Rating Agency).
Alternative title: Small Agency, which is previously has been fined for Ratings Without Method, Guesses that Anthropic's Numbers are close to normal for startups; FT Reports the Guess as News.
The growth slowdown is decidedly unexpected. The market priced in a $2T valuation that assumed it wouldn’t slow down.
https://www.reuters.com/business/finance/investors-temper-an...
But it does not say anything about the slowdown being unexpected. What it does say is that four unnamed people were disappointed by the slower quarterly growth. If four people had an unrealistic expectation that revenue should double every quarter and were disappointed with only 45% growth for a firm already at 25% of Nvidia’s revenue, that does not mean that the lower growth rate quarter over quarter is generally unexpected.
And Reuters also said that it is part of a broad tech sell-off underway, which also pushes valuations down.
For the record, I'm not pro-Anthropic and, I would not recommend investing in them or any fresh IPO, for that matter, since heavily hyped IPOs with high valuations almost always do worse after the initial pop-off.