Residual Value Guarantees (RGVs) have emerged as a new tool in AI debt financing in the past few months. But RVGs did not originate in AI finance; they have long been used in aircraft leasing, equipment leasing, and auto leasing. Their re-emergence in AI debt reflects a common problem: lenders are being asked to finance assets whose future value is unusually hard to forecast, and a guarantee from a well-capitalized sponsor is one of the few tools available to bridge that uncertainty. Rental rates for Nvidia's H100 chip are reported to have fallen from roughly $8 per hour in early 2024 to $2–3 per hour by late 2025, a decline of 60–70 percent in about eighteen months. High-performance GPUs are also generally understood to face a two-to-three-year obsolescence cycle, while the debt used to finance them commonly carries three-to-five-year (and in some data center deals, twenty-year) terms. That mismatch between the useful economic life of the asset and the tenor of the financing is the central problem that residual value guarantees, along with related credit backstops, are designed to address. In its simplest form, an RVG obligates the guarantor to pay the difference between an asset's actual fair value at a defined point — typically lease expiration, non-renewal, or early termination — and a pre-agreed floor value, if the actual value falls short. The guarantee does not eliminate the underlying depreciation risk; it reallocates who bears it, shifting exposure from the debt or equity investors in a financing vehicle back toward the corporate sponsor that benefits from using the asset. For sponsors, an RVG is attractive because it unlocks financing that would otherwise be difficult to raise. For lenders and equity investors in the SPV, the guarantee substitutes the sponsor's corporate credit — typically investment-grade — for an independent judgment about what a data center or a fleet of GPUs will be worth years from now, which is precisely the judgment that is hardest to make reliably in this asset class. We see following risks in RGVs: 1. Depreciation uncertainty 2. concentration risk 3. disclosure & balance sheet treatment 4. pricing with out a benchmark. Current accounting standards treat residual value guarantee as a contingent liability: because payment depends on a future asset value falling short of a threshold, which may or may not happen. Companies commonly disclose the maximum exposure in the notes to their financial statements without recording it as a liability on the balance sheet unless and until a payout becomes probable and estimable. To summarise we believe RGVs are procyclical in nature & tail risks are elevated given off balance sheet nature of RGVs. No wonder the Nvidia 5-year CDS has moved up sharply to 75 points currently from 45 points in end June. Same applies to Broadcom 5-year CDS which has moved up sharply to 99 points currently from 50 points in end June.
