Private Dept: A form of private lending where companies borrow from funds created by non-bank financial institutions. It began rising after the 2008 financial crisis as bank lending standards tightened. Recently, AI-related big tech firms requiring massive facility investments have become major borrowers.
Meta, a leading U.S. big tech firm aggressively expanding its artificial intelligence (AI) business, borrowed $30 billion last year to build a data center in Louisiana. Instead of bank loans or corporate bonds, Meta used “private debt,” a form of private lending from investment funds. Amid the recent AI boom, tech companies investing astronomical sums in facilities have increasingly turned to massive private debt financing.
Warnings are growing that if the “AI bubble” bursts, the private debt accumulated by related firms could become a trigger for a global financial crisis. In its quarterly report on the 16th, the Bank for International Settlements (BIS) cautioned, “While AI facility investments are surging unusually, U.S. AI big tech firms significantly increased private debt last year. If the AI industry falters, private debt defaults could spill over into the financial sector.” The BIS referred to private debt as “shadow lending,” noting that it functions as de facto loans but remains opaque on balance sheets.
According to the BIS, global private debt balances jumped from approximately $500 billion a decade ago to $2.1 trillion last year. Beyond Meta, AI “giants” like Oracle and xAI also secured large private loans last year. The Financial Times (FT) reported that asset managers such as PIMCO and BlackRock, along with traditional Wall Street firms like JPMorgan and Bank of America, injected at least $120 billion into private debt funds.
The BIS identified AI itself as a paradoxical driver of risk in tech-sector private debt. Loans to software-as-a-service (SaaS) firms, which face growing crisis concerns due to rapidly advancing AI capable of autonomously generating software, surged over the past three years. BIS analysis showed SaaS private debt balances rose from $60 billion in 2022 to $480 billion last year, with their share of total private debt doubling to 20%. Sebastian Doerr, a BIS economist, stated, “Poor performance fears in software firms now threaten to spread to private debt markets. Indeed, while U.S. software stocks fell 30% since October last year, private debt fund stocks dropped 10% in tandem.”
Warnings are amplifying even on Wall Street, where private debt was once seen as a niche product. Anxiety among institutional and individual investors has grown as major financial firms have abandoned loan recoveries, written off losses, or rejected redemption requests. This month alone, BlackRock, Cliffwater, and Morgan Stanley announced redemption restrictions on their private debt funds. On the 11th, JPMorgan disclosed that it had written off loans to certain software firms as unrecoverable. The International Monetary Fund (IMF) recently urged stricter regulations for private debt, stating, “If borrowers’ credit ratings or collateral values decline, losses could cascade to banks.”