J.P. Morgan's OpenAI loan is strange
114 comments
·October 20, 2025seanhunter
appleiigs
Yeah, I thought it was weird right away too, but brush it off as a tech blog... but then I realized it's actually a finance website. Ruins the credibility of the website instantly.
The $4B revolver will likely sit undrawn. When it gets drawn, there usually a specific plan to reduce it back to zero. It's not for building data centres, a revolver typically used just for timing differences like a credit card is used (and the lenders will be paying attention). Also, when things get bad, there are covenant triggers which would allow lenders to renegotiate.
mamonster
The other part is that it's a revolver, not a bond.You only pay what you use. It's not uncommon in VC. If you need to buy stuff now but your next round is in 2 months the revolver saves your ass. And once you raise you pay it back.
agentcoops
Agreed. Crucially, it doesn’t ask _why_ they want this line of credit and assumes it’s to serve as an equal source of financing as capital investment. Yet, I think the reason for this credit line is rather straight-forward risk management: it is not at all inconceivable that any one of the numerous legal proceedings the firm is already entangled in (to say nothing of ones surely to come) conclude in settlements that would be existential without it. If I were an OpenAI investor, I would certainly want a story for how they would handle such an expected emergency. A few other high-growth startups are publicly known to have obtained such a line of credit at a similar stage.
addicted
Are there other examples of well capitalized technology startups that have significant revenues that have also opted for significant debt financing?
frankchn
Amazon issued $1.25 billion in convertible debt in 1999: https://www.wired.com/1999/01/an-amazonian-debt/
dmurray
Convertible debt is very different: if you do the same (simplistic) analysis as in the article, it behaves almost like the equity example, not the debt one.
neom
We had way more debt than venture financing in the pre-ipo days of DigitalOcean. Thanks Michael Dell!
JumpCrisscross
> well capitalized technology startups that have significant revenues that have also opted for significant debt financing?
Debt is almost always cheaper than equity. Particularly if you can collateralise.
Well-capitalized companies rejecting debt is more of a Silicon Valley outlier in the global economy. (It likely stems from dot-com trauma.)
empath75
I'm going to paraphrase Matt Levine here -- the central trick of bankers is to divide debt into tranches of claims of different seniority, with different rates of return. Debt is a way to borrow money from investors where they actually have a generally low rate of return specified and have a senior claim on being paid back in the case of insolvency. Stocks are a way to borrow money for investors where they get basically _nothing_ in the case of insolvency, but they expect a higher return from either dividends or stock buy backs, or just from company growth. Different investors have different goals in terms of risk/reward for what they want out of a company they invest in, and providing investors more options unlocks more opportunities to raise money.
shmatt
This is literally the reason behind the collapse of Silicon Valley Bank. Debt keeps your cap table untouched, its very tempting at certain stages
reaperducer
Are there other examples of well capitalized technology startups
I think we're well beyond the point where OpenAI can be called a "startup."
epolanski
Pointless argument unless you define what startup means.
Different dictionaries provide different definitions.
A common one is that it's small and recently started business, but it's a very vague boundary.
lordnacho
1) If OpenAI goes bankrupt, JPMC will get more than 0 on their loan. For some reason I have yet to comprehend, when I was sitting on a credit desk pricing CDS, they always used 40% as the recovery rate. I ran into a credit guy who taught finance at two very famous universities, and he also immediately said 40%, with no explanation.
2) It's a revolver, it's not all being used
3) If things go great and OpenAI ends up buying smaller guys or getting bought out (probably MSFT?) then JPMC will be right in there with those young bankers who don't sleep. They will pull in many many millions in fees with very little expense.
4) If things don't go great, OpenAI will be looking for more financing. Guess who will help them?
5) It's really only in case there's an Enron things are terrible for JPMC. Like if it turns out the whole thing was a bunch of guys in India answering every ChatGPT query, something like that. If there's actually an AI business, and despite JPMC's history of due diligence misses (Javice case) that's probably the case, then there's deals to be done.
dsr_
The 40% historical recovery rate comes from a long line of companies that actually built things and produced products, often in factories with equipment in them... and a warehouse full of product that didn't sell at full price.
If OpenAI folds, there are two basic scenarios:
- one: the LLM crash has come, and OpenAI barely has any material assets. Microsoft isn't putting more money into it, and they won't take it over -- people with seven figure salaries will be looking for six-figure jobs.
- two: somehow, only OpenAI crashes, and the rest of the LLM boom continues. This likely involves OpenAI being extraordinarily outcompeted, so it's a long slow decline as contracts run out and are not renewed. 40% is probably high, but if JPM can retract the revolving debt before it all goes out the door, not ridiculously high.
JumpCrisscross
> the LLM crash has come, and OpenAI barely has any material assets
They have claims on the use of assets via their leases.
More directly, if AI crashes in the next 2 years, they get bailed out. Between OBBA, tariffs and immigration enforcement, the American economy less AI is probably already in a recession. Trump and the GOP would get desperate if the political leash the AI boom has granted them is shortened. Borrowing another few trillion dollars to fix it would be worth the gamble.
ivape
4) If things don't go great, OpenAI will be looking for more financing. Guess who will help them?
Who? I can only think of the Saudis/UAE and SoftBank.
lordnacho
If Softbank buys OpenAI, they don't just sign a contract and send a cheque. They need powerpoint slides from JPMC to make the deal happen, and that costs money.
chadash
The math is wrong:
> Cost: $1,000 Case 1 (90%): OpenAI goes bankrupt. Return: $0 Case 2 (9%): OpenAI becomes a big successful company and goes 10x. Return: $1,000 + 5% interest = $1,050 Case 3 (1%): OpenAI becomes the big new thing and goes 100x. Return: $1,000 + 5% interest = $1,050
The actual math is that if OpenAI succeeds, then there's a nod and a wink that JPM will land the lead role in the IPO or any mergers/acquisitions, which translates into huge fees.
JamesBarney
Not to mention the risks that OpenAI even if it does goes bankrupt sells for less than 4b is not anywhere close to 90%.
shmatt
a company with 800 million weekly active users, and only losing $10B-$15B before implementing ads - which IMO is coming fast and soon to the LLM world - i would never calculate a 90% chance their shares end up at $0 before an exit option
This is the easiest money and best relationship JPM could imagine
kibwen
> a company with 800 million weekly active users
Wow, that's slightly more than Yahoo has. Well, had.
null
addicted
This is correct.
This isn't a financial transaction. This is a "relationship" transaction.
empath75
Also, if OpenAI goes bankrupt, you _much_ prefer to have loaned them money to having bought shares in the company. People who own shares in a bankruptcy only recover anything after all the people that loaned them money are paid back in full.
daft_pink
I’m pretty sure the banks view the intellectual property value as the security for their loan not the potential profits of the company.
I’ve worked for enough startups that even if your company folds and goes bankrupt with no business plan the ip generally can easily cover the outstanding loans.
SoftTalker
I think that's got to be highly variable. I've worked for a couple of startups that went under and the IP had basically zero value. Who is going to pay for a failed implementation of a failed idea?
JamesBarney
I don't think OpenAI will be one of those companies. I can't imagine a world where OpenAI sells for less than 4b.
nickff
Well, the question isn't what OpenAI's intellectual property is worth right now, or what you expect it to be worth, but what it is likely to be worth after OpenAI has become insolvent (and few/none of the current employees are working on it). The most likely causes for it becoming insolvent are probably that another company out-innovates them, or that the revenues never come in (despite OpenAI being a market leader). In either case, OpenAI's IP is unlikely to be sufficiently superior to the competition's to warrant a large premium.
I am not sure how differentiated OpenAI's IP is, so I don't have a strong opinion, but it seems to me that OpenAI is worth a lot more as a package than it would be as a collection of pieces.
ohdeardear
Their web-application is worth $200,000. The software of the training infrastructure is worth perhaps $2M; the inference infrastructure is worth perhaps $500,000. Their hardware is worth nothing in 3 years. Their B2B relations are worth perhaps $5M. The "data" they have is worth nothing in 5 years, because a sufficiently smart model will be able to learn without human feedback.
They have no moat. So, how do you get to $4B?
I think the models are wrong way too often for relatively simple queries, so unless they give a secret prompt like "be wrong a lot in the free version" to users, it's basically worthless.
KaiserPro
> I’m pretty sure the banks view the intellectual property value as the security for their loan not the potential profits
Naa that takes too long to get any value from. If openAI goes pop, their IP isn't going to be worth much, because it'll die from competition, or the economy going to shit.
CamperBob2
Depends if they end up in a position to shake down the rest of the industry, as Google can with the Transformer patent(s).
schmidtleonard
Who buys the IP?
JamesBarney
Like he said Microsoft is the most likely person to want to acquire the IP and employees. Amazon could be a potential second. Google paid 2.4b to license Windsurfs technology, OpenAI would go for far more.
singron
Microsoft already has rights to the IP. If OpenAI goes bankrupt, they can hire the employees without buying the company (similar to their offer in 2023 when the board tried to fire Sam Altman). Although if OpenAI goes completely bust, that probably means interest in AI across the industry has tanked, so an acquihire makes little sense over just hiring available talent on the market.
candiddevmike
It must be nice to put IP up as collateral for a loan. I know myself and a few other founders have tried and basically been told to go pound sand.
nradov
That was one of the key parts of Silicon Valley Bank's business model. And that part worked pretty well: their collapse was caused by mismanaging interest rate risk and they never took many losses on loan defaults.
nine_zeros
Parts of SVB got picked up by JPM.
ferguess_k
At this point I would rather consider this kind of large loans to be "political" than "technical", that is say, they may or may not make sense in terms of $$$, but may make a lot of sense in other areas.
adrr
Big banks will give sweetheart loans to startups and officers of startup for the opportunity to take a company public. They’ll make billions on the IPO.
LudwigNagasena
> Case 1 (90%): OpenAI goes bankrupt. Return: $0
The loan value in case OpenAI goes bankrupt depends on the details of the deal.
fred_is_fred
It's almost certainly not $0 for JP Morgan. It might be $750 or $400 or whatever but it's not $0.
sberens
> This Reuters article claims OpenAI is going to generate $3.6 billion in revenue this year, but the costs will lead to a loss of more than $5 billion. It expects a major revenue jump next year to $11.6 billion
The article linked[0] is from last year.
A recent article[1] from this year says "OpenAI looks to meet its full-year revenue target of $13 billion and a cash-burn target of $8.5 billion, the report added."
[0]https://www.reuters.com/technology/artificial-intelligence/o...
[1] https://www.reuters.com/technology/openais-first-half-revenu...
emp17344
Aren’t they still deep in the red? What’s the justification for claiming they’ll become profitable?
Rudybega
Yeah, this is a pretty major error. They already have a higher revenue than the article's quoted "jump next year" (which was this year and was an underestimate).
NewsaHackO
Don't worry, people in the thread are now going to pivot to "Uhh, those numbers don't matter! Here's an opinion from some tech blog about the financials of a private company!"
akshayshah
I'm no expert in corporate finance, but whether or not OpenAI goes bankrupt feels like the wrong question to me (in thinking about this loan). Wouldn't a bank be more concerned with (1) the likelihood that OpenAI can raise another round of financing from which to repay the bank, and (2) the likelihood that OpenAI will have assets worth >10B when/if they do eventually declare bankruptcy?
The bank's risk seems quite a bit lower than the VC's risk.
Closi
Also 5% would be a ridiculously low rate for this sort of corporate finance. You would expect more like 8-12% I think?
Plus the post seems to only include 1 year of interest.
Unless we know the terms, I don't think we can necessarily calculate EV from JP Morgan's perspective. I would say that they aren't usually carelessly giving away money though... They probably have terms where they can get out early if OpenAI's position weakens etc.
photonthug
> feels like the wrong question to me
I agree but had different questions. TFA mentions the consideration of whether failure cases are correlated, but of course if OpenAI wins big, there's a good chance this directly or indirectly creates much instability and uncertainty in many other loans/partners. What's the EV on whether that is net-positive considering this is a loan at 5% and not an investment?
On the other side, if OpenAI crashes hard, is it really such a sure thing that Microsoft will be the on the hook to pay off their debts? Setting aside whatever the lawyers could argue about in a post-mortem, are they even obligated to keep their current stake / can they not just divest / sell / otherwise cut their losses if the writing is on the wall?
nradov
JPMorgan Chase might not mind ending up owning much of OpenAI's IP if they default on the loan. Banks have largely been locked out of making equity investments in OpenAI so far so perhaps they see this as the next best alternative?
themafia
> Luckily for us, banks exist!
Exactly. If they completely fail and threaten to take the economy with them then they can just say "Luckily for us, taxpayers exist!"
javaunsafe2019
Have you even read the article before posting?
themafia
Yes. Then I got to the point where it suggested, rather blithely, that the primary function of banks is to understand and absorb risk. I thought that deserved a reply. Did it bother you?
flanked-evergl
All the money lent to banks via TARP during the 2008 crisis was paid back with interest.
thevillagechief
The government(and taxpayers I assume) actually made out pretty well on the bailout loans. Considering the government still owns 99% of Fannie Mae and Freddie Mac, after retaining billions in profits over the last decade and a half.
stackskipton
Yes, US Treasury has gotten profit from Fannie/Freddie. However, there is concern from OMB that risk is not properly being calculated and thus in event of small housing crisis, US Government would have to back stop them again and possibly wipe out any profits gained.
themafia
TARP was a collection of programs and not a general loan facility.
adventured
The primary bailout during the 2008 housing crisis went to homeowners, not to banks through TARP. The secondary bailout was to banks, the Fed bought up trillions of dollars worth of garbage housing assets. That homeowner bailout was never paid back: it damaged the economy in the form of dollar debasement (ie lower purchasing power for everybody holding dollars). The Fed increased its balance sheet 400% in six years, and never looked back. The housing bailout was trillions of dollars, meant to keep that gigantic housing asset pool inflated artificially. We did it again during Covid, with another gigantic consumer bailout.
See: gold at $400 vs gold at $4,000. Aka the destruction of the USD.
JamesBarney
Inflation was stable and pretty low for the 10 years after the financial crisis.
Gold wasn't at $400 per oz before the financial crisis, and the spike in gold prices was fairly recent.
Basically the financial crisis response didn't cause inflation, the covid response did.
drivebyhooting
Paid back with interest but also inflation.
beambot
Secured debt doesn't go to zero in the 90% failure mode...
Havoc
Banks are pretty chill about these things. I've been controller on something with a billion+ revolving facility myself.
You can basically throw the entire analysis out on a single point:
>Case 1 (90%): OpenAI goes bankrupt. Return: $0
It won't be $0. Creditors have liquidation priority and banks make very sure they're confident in the quality of the collateral before handing out billion dollar facilities.
What a weird analysis.
A company that has revenues and is extremely well-capitalized gets debt finance. That is not news. That is totally commonplace. "Shouldn't all their capital come from investors?" No. Companies at all stages typically use a mixture of debt and equity finance.
His EV calculation is completely flawed also. Debt finance is typically senior to equity in recovery at bankruptcy, so when JPMC do this analysis (and believe me they did this analysis) they are not assuming 0% recovery. They are thinking it is most likely in a bankruptcy that they get some x>0% recovery.
Finally, banks don't think about their relationship with a multi-billion-dollar company in terms of the ROI on a single revolving credit. (even though this will in all likelihood be very profitable for JPMC). They think about how giving this revolving credit makes it more likely they get advisory on any future bond issuance and I-banking work when OpenAI want to do takeovers, and a foot in the door at IPO time etc.