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points by bunderbunder 4 days ago | 0 comments
Borrowing money is not the only way to go into debt. They reportedly made binding and non-cancelable commitments. Once those commitments come due then they will be indebted to their counterparties until they pay up or the courts sort it out.

This is comparable to how, if I sign a 12 month non-cancelable lease and then don’t pay the rent, I will be in debt to my landlord.

[–] freakynit 4 days ago
People heavily underestimate the number of tricks available to corporates for taking on "debt": https://latentstate.net/the-hidden-ledger/
[–] _heimdall 4 days ago
That's effectively borrowing money with a different name though. The only way to go into debt is to sign an agreement to pay someone money in the future, regardless of the terms used to describe it.
[–] smallmancontrov 4 days ago
No, it's really not. Do you have a war chest to drag out a legal battle and the ability to bankrupt your landlord by withholding payment? The rules are different at this scale, and "you can't enforce a contract if the attempt will bankrupt you" is only one of the possible games.

Here's another one: pay a supplier to cripple their deployment. Suddenly it's the neocloud's fault for failing to deliver, not your fault for failing to pay.

Did we all forget how Sam Altman turned a non-profit into a for-profit? Do we think he'll bring less sociopathy to this battle?

[–] haldujai 4 days ago
> Do you have a war chest to drag out a legal battle and the ability to bankrupt your landlord

Their war chest is not sufficiently larger than the hyperscalers, Broadcom or PE financiers like BlackRock.

> The rules are different at this scale, and "you can't enforce a contract if the attempt will bankrupt you" is only one of the possible games.

Rather, the inverse of what you said and far less Machiavellian.

It is legally well established that take-or-pay contracts are unenforceable if it would bankrupt the buyer which is the more likely resolution in this case. However, this does not mean frontier labs just get to walk away. They would settle in court for a penalty that is less than the full contract price.

See: AMD/global foundries and pretty much every oil and gas or commodity deal that goes bust when market pricing makes extraction unfeasible.

[–] smallmancontrov 3 days ago
> Their war chest is not sufficiently larger

That's not the metric. The legal system is pay-for-delay, not pay-to-win. Once you have enough money to delay, it becomes a contest of who has the longer runway, and that probably goes to the frontier labs rather than the neoclouds who have little alternative revenue and comparatively airtight debt obligations.

> take-or-pay contracts are unenforceable if it would bankrupt the buyer which is the more likely resolution in this case. However, this does not mean frontier labs just get to walk away. They would settle in court for a penalty

Regardless, the terms come down to positioning and bargaining power. Runway vs obligations. This seems to dramatically favor the labs.

[–] haldujai 3 days ago
> it becomes a contest of who has the longer runway

Which is what I said - frontier labs do not have a sufficiently larger war chest.

Respectfully, comparing the balance sheets of a frontier lab to Blackrock, Apollo, Softbank or Nvidia is laughable.

The neocloud will also easily rent out that unused compute and keep funding their war chest via Nvidia’s backstop. If Nvidia can’t pay then it’s all over and AI companies have been swallowed by credit markets.

Your hypothesis also ignores the fact that if frontier labs are not paying for compute it is because they have bad revenue, little cash available and no credit (no one is loaning money to OAI or Anthropic if they can’t pay their bills. They can barely get debt today).

> Regardless, the terms come down to positioning and bargaining power. Runway vs obligations. This seems to dramatically favor the labs.

No, the only way out is for OpenAI or Anthropic to claim in court that they would be insolvent if they are required to pay the bill in full. Otherwise this is a straight forward deal.

You are greatly overestimating their capabilities and underestimating how many substantially more well-funded and highly liquid players will be lining up to take their pound of flesh if OAI or Anthropic default on a bill.

I’d wager my life savings one of those two will go through liquidation.

[–] InsidiousWombat 3 days ago
Does it matter if they "win" or "lose" legally ? They still don't have money to pay, so someone (probably people that gave them their debt in the first place, and their investors) will end holding the bag.