J.P. Morgan's OpenAI loan is strange
2 days ago
- #Risk Analysis
- #OpenAI
- #Corporate Finance
- OpenAI secured a $4 billion revolving credit facility from J.P. Morgan and other banks despite being a young company with no earnings.
- An Expected Value (EV) calculation shows lending to OpenAI at 5% interest is unfavorable unless the bankruptcy probability is below ~5%.
- Market data suggests OpenAI's loan terms (SOFR + 100bps) align with rates for established firms (A-/BBB credit ratings), not startups.
- OpenAI's financials (projected $3.6B revenue but >$5B loss) don't justify the loan terms, implying banks rely on Microsoft's backing.
- Banks likely view the loan as de facto backed by Microsoft (28% owner), mitigating risk of OpenAI's default.