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Anthropic secured highest junk credit rating in June

Reading from TradingKey · Credited to Financial Times $ · ft.com · 18h ago

In June, KBRA assigned AI startup Anthropic a speculative-grade "BB+" credit rating with a stable outlook, just below investment grade. Despite incomplete financial data regarding free cash flow and EBITDA, the rating was supported by robust operational performance, including strong third-quarter revenue growth and consecutive adjusted profitability. However, slowing growth rates and massive computing power investments highlight long-term financing and cash flow risks. Achieving a future investment-grade rating would lower capital costs and broaden access to long-term institutional funds like pension funds, aligning with similar pre-IPO financial strategies pursued by rival OpenAI.

TradingKey - Anthropic's Credit Rating Surfaces for the First Time.

According to documents obtained by the Financial Times, credit rating agency Kroll Bond Rating Agency (KBRA) assigned Anthropic a "BB+" rating with a stable outlook in June this year. This is the highest tier among speculative-grade ratings, just one notch below the investment-grade threshold.

For an AI startup founded just five years ago with relatively limited financial disclosures, this outcome is not bad. If Anthropic achieves an investment-grade rating in the future, the company will gain access to larger pools of long-term capital, such as life insurers and pension funds, while reducing financing costs for debt issuance and data center construction.

The rating was established prior to the closing of a $35 billion chip financing deal. The financing package was led by Apollo Global Management ( APO ), with participation from BlackRock ( BLK ) and several banks, primarily to support Broadcom's ( AVGO ) AI chip platform. Of this, approximately $4.4 billion in subordinated debt directly exposes investors to Anthropic's credit risk, while the remainder is supported by Broadcom. The issuance yield on the subordinated debt was around 8.5%, while the interest rate on the senior debt was 5.75%.

Notably, KBRA assigned the rating despite having incomplete financial data.

Anthropic provided the rating agency with revenue, adjusted operating profit, annualized first-quarter revenue, and second-quarter internal forecasts, but did not disclose key metrics such as free cash flow and EBITDA. Analysts could only estimate the company's debt-service capability based on limited data and their own assumptions, employing a risk-scoring approach instead of a traditional comprehensive financial model.

Despite disclosure gaps, Anthropic's recent operating performance provided support for its credit rating. The company stated at a pre-IPO investor presentation that third-quarter revenue grew approximately 46% quarter-over-quarter to $16.8 billion, marking its second consecutive quarter of adjusted profitability. Actual second-quarter revenue was approximately $11.5 billion, higher than the internal forecast of $10.9 billion it previously provided to KBRA.

However, Anthropic's growth rate has slowed noticeably compared to the beginning of the year, and its third-quarter results fell short of targets previously set by some optimistic investors. This implies that while the company is improving profitability, it has yet to fully demonstrate that its revenue growth can cover its massive computing power investments over the long term.

As of the end of June, Anthropic carried no debt on its own balance sheet. In the past, the company primarily relied on commercial partners with higher credit quality and special purpose vehicles to raise funds for chip procurement and compute leasing. While this model temporarily alleviates on-balance-sheet debt pressure, it cannot eliminate the financing risks ultimately borne by Anthropic's lease payments and operational cash flow.

Anthropic is not the only AI company seeking higher credit ratings; rival OpenAI is also preparing for a potential IPO, with financial advisors for both firms lobbying major rating agencies for investment-grade ratings post-listing.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.

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