How to Find the Debt That Isn't on the Balance Sheet

Why this skill matters more in 2026 than it did in 2016

The live example is the AI infrastructure buildout, and the numbers make the point better than any abstract explanation.

Moody's reported in July 2026 that six major technology companies had collectively committed to roughly $1.2 trillion in data centre lease obligations, up from $969 billion five months earlier. More than $820 billion of that related to facilities still under construction that had not begun operating. Under current accounting rules, most of it is not recorded as debt.

Moody's estimated that the not-yet-commenced portion alone exceeded the combined on-balance-sheet debt of those same companies. An investor reading only the balance sheet would see less than half of the fixed commitments.

The five places to look

1. The lease footnote.

Under current standards, leases that have commenced appear as right-of-use assets and lease liabilities. Leases that have been signed but not yet commenced generally do not. Companies disclose them narratively — often with total future payments, term ranges and noncancelable periods. This is where the largest gaps currently sit.

2. Commitments and contingencies.

This footnote captures purchase obligations, take-or-pay contracts, capacity offtake agreements, and minimum volume commitments. A take-or-pay contract is economically identical to debt: you pay whether or not you take delivery.

3. Guarantees and residual value guarantees.

If a company guarantees the obligations of an entity it does not consolidate, or guarantees the residual value of an asset at the end of a lease, it has taken on a contingent liability with a real expected cost.

4. Variable interest entities and unconsolidated joint ventures.

Where a company holds a minority stake in a vehicle that carries debt, that debt does not consolidate onto its balance sheet. The company may still be economically committed through leases, offtakes or guarantees.

5. The contractual obligations table.

Many filings include a table of contractual obligations by maturity. It is the fastest single view of total fixed commitments, and it is frequently skipped.

The calculation

Here is a practical adjusted-leverage approach you can run yourself:

Step 1 — Start with reported net debt.

Total debt minus cash and equivalents.

Step 2 — Add committed but unrecorded obligations.

Not-yet-commenced lease payments, take-or-pay minimums, and firm purchase commitments. For a rough approximation, use the undiscounted total from the footnote; for precision, discount at the company's incremental borrowing rate.

Step 3 — Add a share of unconsolidated entity debt.

Where the company holds a minority stake and is the primary economic beneficiary, adding its proportionate share is a defensible adjustment.

Step 4 — Recalculate coverage.

Divide adjusted obligations by EBITDA, and compare the fixed-charge coverage ratio before and after.

The gap between those two columns is the number that matters.

What to watch for as warning signs

• Rapid growth in the not-yet-commenced line. Alphabet's disclosed not-yet-commenced data centre leases grew from $23.9 billion in Q2 2025 to $42.6 billion by Q3, with terms extending to 2031. The rate of change is often more informative than the level.
• Long noncancelable periods. Commitments running one to 25 years are functionally permanent.
• Minority stakes in capital-intensive vehicles. A small equity stake paired with a long-term lease is the signature structure.
• Residual value guarantees. These transfer downside asset risk back to the company that structured the deal to avoid it.
• A widening gap between operating cash flow and free cash flow that management attributes to timing.

The honest limits of this analysis

Two cautions, because this technique is easy to over-apply.

Not all commitments are equivalent to debt. A lease on a productive facility generating revenue is very different from a lease on speculative capacity. Adding every commitment to net debt without judgment produces a scary number and a bad conclusion.

Disclosure is not deception. These obligations are in the filings. Companies are following the rules as written. The analytical problem is fragmentation — no single disclosure conveys the total, and the total is what matters. Rating agencies have been explicit that they are increasingly looking past reported debt to total cash commitments, which is a signal that this adjustment is becoming mainstream rather than contrarian.

Applying it

You do not need to do this for every holding. Do it when:

• A company's capital intensity has changed rapidly
• The business model has shifted from asset-light to asset-heavy
• Free cash flow is diverging from reported earnings
• The company operates in an industry using SPV or joint-venture financing structures
• A rating agency has published a sector-level warning

Screen your own holdings for capital intensity changes with the Quorum AI scanner, and track filing dates through My Watchlist.

Bottom line

Every large financial dislocation of the past four decades has involved obligations that were technically disclosed and practically invisible. The footnotes are not a formality. They are where the leverage lives.

Frequently asked questions