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.
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.
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?
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?
The bank's risk seems quite a bit lower than the VC's risk.