The artificial intelligence boom has become a lending boom. Private credit funds, which have grown into a major source of financing for companies that can't easily tap public markets, are now bankrolling everything from data centers to the chips inside them. But according to Moody's, the party may have a hangover coming: a wave of debt maturities between 2027 and 2029 could reveal which borrowers can't refinance at today's higher interest rates.
What Moody's is saying
Moody's, a credit ratings agency that assesses the risk of corporate debt, says the rush to fund AI infrastructure is pulling private credit deeper into technology. It's no longer just about building data centers. Lenders are financing the entire supply chain, from land and power to chips and graphics processing units (GPUs), the specialized processors that power AI models.
The firm expects capital spending by the five largest US hyperscalers—cloud giants that run massive data centers—plus CoreWeave, an AI-focused cloud provider, to approach $1 trillion in 2027. Some of that spending is funded through plain corporate borrowing, but a growing share is coming from private credit, which has become a go-to source for companies that need large, flexible loans quickly.
Private credit is a form of lending done by non-bank firms, such as asset managers and specialized funds, rather than traditional banks. These loans are often made to companies with higher risk profiles, and they typically carry higher interest rates to compensate for that risk. The market has exploded in recent years, and AI infrastructure has become one of its hottest areas.
The refinancing cliff
The problem, Moody's warns, is that many of these loans are set to mature between 2027 and 2029. When a loan matures, the borrower must either pay it off or refinance it—take out a new loan to replace the old one. If interest rates stay high or the borrower's financial health deteriorates, refinancing can become expensive or even impossible.
Moody's also points to the growing use of payment-in-kind (PIK) interest, which allows borrowers to pay interest with more debt instead of cash. While that can ease short-term cash flow pressure, it also increases the total debt load, making the borrower more vulnerable if conditions worsen.
Weaker borrowers, particularly those with thin cash flows or heavy debt loads, could be the most exposed. If they can't refinance at favorable terms, they may face default or be forced into distressed exchanges, where lenders accept less than what they're owed.
Why this matters for investors
For everyday investors, this story is a reminder that the AI boom isn't just about stock prices. It's also about a growing pile of debt that could create ripple effects across financial markets.
Private credit is often sold to institutional investors like pension funds and insurance companies, but it's also increasingly accessible to retail investors through funds and exchange-traded products. If a wave of defaults hits, those investors could see losses. Even if you don't directly hold private credit, the health of the financial system matters for your portfolio.
The good news is that the refinancing wave is still a few years away. That gives borrowers time to shore up their balance sheets, and it gives lenders time to assess risk. But Moody's warning is a signal that the easy money era of AI lending may be coming to an end.
Investors should watch how companies like CoreWeave and the hyperscalers manage their debt loads in the coming years. If they can generate enough cash flow to service their obligations, the refinancing wave may pass without major disruption. If not, the fallout could spread beyond the tech sector.
The broader context
This isn't the first time Moody's has flagged risks in the credit markets. The firm has also been cautious on other areas, such as France's sovereign debt, where it recently held the rating at Aa3 but kept a negative outlook. And the private credit market itself has been under scrutiny, with some regulators warning about a lack of transparency and the potential for systemic risk.
At the same time, private credit continues to attract big money. For instance, Meiji Yasuda is lifting its backing of Man Group's private credit strategy to $1.3 billion, a sign that institutional investors still see opportunity in the asset class. And Apollo and partners are putting $5 billion into Mubadala Capital's private markets, further evidence of the sector's appeal.
But the AI lending boom is unique in its scale and speed. The sheer amount of capital being deployed—approaching $1 trillion in just a few years—has no recent precedent. That's why Moody's is urging caution.
What to watch next
In the near term, investors should keep an eye on interest rates. If the Federal Reserve and other central banks cut rates, refinancing becomes cheaper and the risk of a wave of defaults diminishes. If rates stay high, the pressure will build.
Also watch for any signs of stress in the private credit market, such as rising default rates or distressed debt sales. Those could be early warnings of trouble ahead.
For now, the AI boom continues, and private credit is along for the ride. But as Moody's reminds us, every boom eventually faces a test. For AI lenders, that test is coming in 2027.
