The &#34;gray area&#34; of U.S. Generally Accepted Accounting Principles (GAAP) is allowing tech giants to make hundreds of billions of potential debt &#34;disappear&#34; from their balance sheets while they are frantically building AI data centers.
According to a report by the Financial Times on February 23, international rating agency Moody's issued a warning that the current accounting standards in the U.S. have &#34;limitations&#34; that allow large tech companies to hide hundreds of billions of potential liabilities amid the AI data center construction frenzy. This loophole may make it difficult for investors to see the true financial health of these tech giants.
Moody's analysts pointed out that due to the restrictions of the rules, AI companies may not need to account for the costs of renewing leases for data centers in their statements, nor for the costs incurred from not renewing, even though both figures could be extremely large. Moody's warned that &#34;disclosure may not present the full picture,&#34; and the current accounting liability figures &#34;are unlikely to reflect certain reasonable future scenarios.&#34;
<h2>The &#34;Blind Spot&#34; of Accounting Standards</h2>
As companies like Meta and Oracle increasingly use special purpose vehicles (SPVs) primarily funded by external investors to build data centers, this &#34;off-balance-sheet financing&#34; model is drawing close attention from the credit market. In the eyes of rating agencies and many bond investors, the long-term costs of leasing data centers back from these entities are essentially equivalent to debt.
However, Moody's found that companies cleverly design lease terms to make these liabilities &#34;invisible&#34; on the books.
The specific operation is: companies sign relatively short lease contracts while promising to pay compensation (i.e., residual value guarantee, RVG) if not renewing leads to a decline in the value of the data center.
According to U.S. Generally Accepted Accounting Principles (GAAP):
<blockquote>
<ul>
<li>Renewal cost accounting standard: Renewal must be &#34;reasonably certain,&#34; typically viewed as having a probability of at least 70% or more.</li>
<li>Compensation accounting standard: Compensation triggered by not renewing the lease only needs to be accounted for when it is &#34;probable,&#34; meaning the probability exceeds 50%.</li>
</ul>
</blockquote>
This creates a perfect &#34;vacuum zone.&#34; Analysts David Gonzales and Alastair Drake explained:
<blockquote>
&#34;The decision to extend the lease partly depends on whether the hyperscale company is willing to make additional investments in hardware... Strict application of the guidelines may lead to many lease renewals falling below the 'reasonably certain' standard.&#34;
</blockquote>
Since the key technological components of data centers typically have a lifespan of only 4 to 6 years, companies can argue that renewal is not &#34;reasonably certain,&#34; while also arguing that triggering compensation is not &#34;probable.&#34; The result is that both potential massive expenditures do not need to be recorded as liabilities.
<h2>Meta's $28 Billion Invisible Guarantee</h2>
Moody's used the largest private credit data center deal currently as an example to elaborate on this risk.
Meta plans to build the Hyperion facility in Louisiana, which is placed in a special purpose vehicle named Beignet Investor, financed by Blue Owl Capital
Meta will lease facilities to the entity, with an initial lease term of only 4 years, but with renewal options of up to 20 years.
The key point is that Meta also provides guarantees of up to $28 billion, promising compensation if the property value declines.
However, these astonishing figures only appear in the footnotes of Meta's latest annual report, and no related liabilities are recorded on the company's balance sheet. Meta stated in the report: &#34;As of December 31, 2025, the payment of the Residual Value Guarantee (RVG) is not 'highly probable,' and therefore no liabilities are recorded.&#34;
This treatment makes hundreds of billions of dollars in potential cash outflows &#34;invisible&#34; in the statements, despite having a significant impact on the company's future financial flexibility.
<h2>Moody's Response: We Will Manually Adjust</h2>
In the face of increasingly common off-balance-sheet financing methods, Moody's stated it would adopt stricter assessment standards.
The agency explicitly pointed out that when determining what credit rating to assign to technology companies, it will conduct its own probability assessments to determine which future liabilities should be considered.
Moody's stated: &#34;If we believe that reported lease liabilities underestimate potential cash outflows, we may make quantitative debt adjustments.&#34; The agency added that such adjustments would &#34;consider the potential renewal terms or the possible exercise of the Residual Value Guarantee (RVG), or both.&#34;
This means that even if tech giants have compliantly hidden their debts on accounting statements, they may still face the reality of rating agencies treating them as actual debts when seeking financing in the bond market, which could have potential impacts on the company's credit rating or financing costs

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Moody's warned that U.S. accounting standards have loopholes that allow tech giants like Meta and Oracle to exclude hundreds of billions of dollars in AI data center construction costs and guarantee obligations from their balance sheets through special purpose vehicles (SPVs) and short-term lease agreements. For example, Meta's remaining value guarantee of up to $28 billion was not included in liabilities because it did not meet the probability threshold set by accounting standards

- U.S. accounting standards allow tech giants to hide potential liabilities exceeding $100 billion amid a surge in AI data center construction, according to Moody's.  
- The use of special purpose vehicles (SPVs) for funding and short lease agreements creates an environment where significant costs are not recorded as liabilities.  
- Moody's plans to implement stricter assessment standards, adjusting credit ratings based on potential future liabilities that may not be reflected in the companies' financial statements.

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The bond market can't take it anymore? Moody's warns: American tech giants use accounting standards to "hide potential liabilities of hundreds of billions of dollars"