NVidia, SPVs

Monday August 17, 2026

This is high level EL5.

When you buy a home you take out a mortgage that is collateralized against the home.

The bank loans you money to buy the house and house secures the loan. The bank requires you to take out insurance on the property to protect their investment.

This works for the bank because your home is more than likely going to go up in value but in the worst case it is still going to have more value than the loan balance as the years go buy.

Now, imagine trying to get a loan for a ham sandwich. A ham sandwich spoils pretty quickly especially if it has mayo on it. Now a bank won’t loan you money against to buy a ham sandwich but private credit might.

But, they are going to charge you interest on that loan high enough to cover for the fact that the asset securing the debt (the sandwich) is not going to maintain value.

GPUs are ham sandwiches. Not homes.

GPUs spoil very, very fast and on average will be worthless (physically incapable of doing anything other than act as a doorstop) in around 8-10 years.

This means the rate of return on any loans to buy GPUs has to be high enough that the lender returns 100% of their investment BEFORE the GPUs stop working.

Otherwise, it’s a bad investment. Now, SPVs are being purchased via bonds not loans. And lenders are taking out insurance on the bond being repaid or potentially they are requiring the SPV to pay for those contracts. But, lenders are not in it to break even.

So the bonds have to return 7.18% for this to workout. This is why the rate on SPV bonds is SOFR + 400 (about). The SOFR rate today is 3.62%. That leaves room to buy SWAPS to insure the bonds. So the bonds are structured based on fair depreciation of the underlying and NOT on the real estate like a lot of people are claiming. It really doesn’t matter that GPUs will fail here the lenders will likely break-even assuming the business is viable. Maybe not a great return but not a big loss.

What matters is whether or not the SPVs (data centers) can make enough profit to actually pay that 7.5-ish% return or not. Because if they can’t the bonds default.

Can publicly traded companies whose customers of publicly trade companies generate enough revenue from business operations AND share selling to pay this interest payment?

Can those same companies just roll bonds (assuming interest rates fall) to make those payments?

Yep to both questions. People tend to forget that the public sector exists to sell shares.

What happens when a company sells shares?

—AJ