Oracle's $38 billion AI infrastructure loan nears completion after months of investor struggle

Oracle-Tied $38 Billion Debt Takes Months To Spread Across The Market

It was an audacious bet by JPMorgan Chase & Co. and Mitsubishi UFJ Financial Group: Taking on a record-shattering $38 billion loan package backing new Oracle Corp. data center projects in Texas and Wisconsin. That was back in August. Months later -- and after more than two dozen banks and other investors joined to share the risk -- they're nearly done, according to people familiar with the matter. Some of the lenders are still looking to offload less than $1 billion, said one of the people, who asked not to be identified because the information is private. For the banks involved, it's a relief that they managed to push through the largest debt deal of its kind on record to finance new US data centers in the midst of geopolitical turmoil and a surge in the perceived credit risk of Oracle. Others, though, see the lengths the lenders had to go -- tapping investors far and wide -- as a cautionary sign that after some $275 billion of hyperscaler and data-center project borrowing since last year, the appetite to continue financing parts of the artificial intelligence buildout is waning. Lenders have been hard at work to wrap up billions more in funding for data centers tied to Oracle as part of its massive Stargate AI infrastructure contract with OpenAI, that originally envisaged investments of up to $500 billion over four years. That's an ask that has grown more challenging as the tech giant -- which has been running on negative free cash flow -- saw the cost of insuring its debt against default soaring in recent months, creating concentrated risk across financial institutions. "There will be a flight to quality, but I don't think this is about AI demand slowing - it's about reality catching up to ambition," said Sean McDevitt, a partner at consulting management firm Arthur D. Little, who focuses on data centers. "Demand is still there, execution is now the challenge." Oracle has pushed the limits of the project finance construction loan market - where lenders invest in the project itself rather than the company - to keep the debt off its balance sheet. As the deal nears the finish line, some banks are still holding larger portions of the debt than anticipated, some of the people said -- a sign of increased scrutiny for data centers where Oracle is the intended tenant. The loans for the Texas and Wisconsin facilities, to be developed by Vantage Data Centers, are part of Oracle's Stargate contract. That also includes a $18 billion debt package for a campus in New Mexico and a $14 billion financing to build a Michigan campus, that's still being finalized after months of start-and-stop negotiations with investors. The Texas data center hub is financed by a $23 billion loan set to close in coming weeks, one of the people said, followed by $15 billion of debt to fund the Wisconsin project. Silver Lake Management and DigitalBridge Group Inc. have committed $3 billion of combined equity for the project. Oracle, JPMorgan, MUFG and Silver Lake Management declined to comment. DigitalBridge didn't respond to requests for comment. Since the deal first began syndicating, the cost of insuring Oracle's debt gradually surged to hit a record in March, in what has become a key barometer for AI credit risk on Wall Street. With commitments originally expected in December and January, lenders cast a wide net to attract an array of investors, including insurance companies and infrastructure funds, the people said. They also reached out as far as Asia, one of the people said. The funding was structured as a delayed-draw term loan A that allows the full amount to be borrowed over time. Investors were recently dangled an upfront fee of 1% to sweeten the deal for smaller commitments, with the loans selling at a spread of 2.5 percentage points over the benchmark Secured Overnight Financing Rate, the person said. Get the Tech Newsletter bundle. Get the Tech Newsletter bundle. Get the Tech Newsletter bundle. Bloomberg's subscriber-only tech newsletters, and full access to all the articles they feature. Bloomberg's subscriber-only tech newsletters, and full access to all the articles they feature. Bloomberg's subscriber-only tech newsletters, and full access to all the articles they feature. Plus Signed UpPlus Sign UpPlus Sign Up By continuing, I agree to the Privacy Policy and Terms of Service. Oracle, which recently tapped a new chief financial officer to run its massive data center development plans, is spending so much to build out capacity to run customers' computing processes that it's expected to run a free operating cash flow deficit for years, according to S&P Global Ratings. Its fortunes are increasingly intertwined with ChatGPT-maker OpenAI, which is also burning through cash without signs of showing profits anytime soon. A breakthrough for the Michigan project came when Oracle showed a willingness to tighten some leasing terms. In another twist for the protracted deal, Pacific Investment Management Co. agreed to anchor the $14 billion debt portion of the package after Bank of America Corp. spent months trying to assemble the financing. "You had a lot of players moving quickly and aggressively to secure their place in an AI ecosystem, and people have tried different approaches to get that done," Arthur D. Little's McDevitt said.

JPMorgan, MUFG near completion of Oracle's $38 billion data center loan - Bloomberg By Investing.com

Investing.com -- JPMorgan Chase & Co. (NYSE:JPM) and Mitsubishi UFJ Financial Group are nearing completion of a $38 billion loan package backing Oracle Corp. (NYSE:ORCL) data center projects in Texas and Wisconsin, according to a report from Bloomberg, citing people familiar with the matter. The banks took on the record-breaking loan in August. After more than two dozen banks and investors joined to share the risk, lenders are still looking to offload less than $1 billion, said one of the people, who asked not to be identified because the information is private. The deal represents the largest debt package of its kind on record to finance new U.S. data centers. The financing comes amid geopolitical turmoil and a surge in the perceived credit risk of Oracle. Some market observers view the extensive effort required to distribute the loan across numerous investors as a warning sign. After approximately $275 billion of hyperscaler and data center project borrowing since last year, appetite to continue financing parts of the artificial intelligence buildout may be waning. Lenders are working to complete billions more in funding for data centers tied to Oracle as part of its Stargate AI infrastructure contract with OpenAI, which originally envisaged investments of up to $500 billion over four years. The financing has become more challenging as Oracle, which has been running on negative free cash flow, saw the cost of insuring its debt against default rise in recent months, creating concentrated risk across financial institutions. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.