[harry8]

>Well technically they don’t own the debt

Channelling the 1980s for off-balance sheet financing 101.

From an economic perspective there is zero difference between borrowing to buy an asset and entering into a non-cancellable long term (equivalent to its economic life) lease for the asset.

The first option causes an asset and a liability on the balance sheet, affecting debt ratios that appear in financing contracts and so on. The second does not appear on the balance sheet.

You pay every month, like it or not. You call it interest or you call it a lease payment. You need it off balance sheet for reasons, investment bankers will structure that to make it happen for a fee.

Technically, from an economic perspective, it's debt.

[vasco]

This is not true at all, leases appear on balance sheets. It's not the 80s anymore

See Apple's FY2025 10-K, the leases are in page 42 under "Lease-Related Assets and Liabilities", which shows:

Operating leases

- Other current liabilities: $1,579 million

- Other non-current liabilities: $10,911 million

Finance leases

- Other current liabilities: $538 million

- Other non-current liabilities: $692 million

Total lease liabilities: $13,720 million

https://s2.q4cdn.com/470004039/files/doc_financials/2025/ar/...

[harry8]

There's regulation update and work around. The point of channeling the 1980s is because it was simple for the 101 explanation. Investment bakers will structure it for you if you need it, inline with the current regulatory environment. At one time cross border leases were fashionable for tax purposes. I don't keep up with such things to know if they still are.

[vasco]

How will they structure that for you to not show up on the balance sheet then? I'm not aware of a way, and the way you described wasn't true. All you now offered is "bankers can do it", but how without having to report it?

[harry8]

This isn’t something in which I’m an expert on any of the current details.

You can borrow a million dollars and use it to buy gold. An asset and a liability on the balance sheet each ba million dollars.

You can buy futures contracts with an underlying value of a million dollars. Nothing on the balance sheet. Zero dollars on both assets and liabilities.

The two are economically indistinguishable.

There are regulations around leases, for example, about what you have to capitalise on the balance sheet and when. Then there are workarounds for those rules. New rules cause the investment bankers to go to work. For a fee.

[vasco]

If you borrow a million dollars and buy gold both of those will have to be communicated to shareholders and indeed show up in the balance sheet. It doesn't matter if you say the lines add up to zero, that's still in the balance sheet shown for everyone to see.

[harry8]

Yes. That is the point. Borrow & buy is on the balance sheet as an asset and liability, as I explicitly said.

If you buy a futures contract with 1m of underlying value - it is NOT on the balance sheet. The balance sheet is unchanged. Economically it is exactly the same thing. It is exactly like you borrowed a million and bought gold with it but the loan and asset are invisible. Shocking, isn't it?

The structured finance dept of an investment bank uses exactly this (among other techniques) for off-balance sheet financing. There are rules they have to follow designed to prevent or minimise off balance sheet financing. You think the regulators have the investment bankers in a bind where they can do nothing and can't charge big fees resulting in the closure of all the structured finance departments? Well you know that could have happened without my knowledge, but I'd be quite surprised. You might know better? Do you want to bet?

[lefty2]

According to the article they don't have to declare leases or GPUs until the datacenter becomes operational

[throwup238]

> Technically, from an economic perspective, it's debt.

Isn’t the important difference that it doesn’t trigger bankruptcy on default? Economically it might not be that different but it has some significance legally because the courts have some fast tracks that trigger bankruptcies (IANAL but that’s my layman’s understanding).

If they “default” in this case it will lead to lawsuits that they will almost certainly lose but in the mean time they kick the can down the road hoping to recover on general economic headwinds like lower interest rates. IMO the risks are obviously correlated here but I’m betting short term incentives drove this mess.

[harry8]

if you can't meet your obligations as and when they fall due, you're insolvent. Contractual specification from there.

[mdnahas]

Economist here. There are 3 parties and I’d focus on the investor’s perspective. The investor gives money to the intermediary company that signs a contract with the using company. If the contract fails, the intermediary still has the asset and can still make money. It can still payback the investor.

If the investor was given a bond, it is possible they aren’t paid back in full. And that’s where I would worry. The Great Recession was so bad because bond rating agencies marked bad bonds as investment-grade. That is, bonds you could rely on. When “sure future money” isn’t sure, the system glitches.

[throwup238]

Paying someone a week late (or not at all) on net 30 terms does not trigger insolvency proceedings. The type of obligation matters.

[blitzar]

tbh this is only novel for the tech companies because they have never really had these types of product lines or unit cost structures before. a sass and brick and motor retailer scale very differently.