Key points
- Oracle (ORCL) data-center loans are quoted below par
- Banks are struggling to sell the debt
- An early sign investors want a discount on AI debt
- The loans fund an OpenAI-linked campus
About $18 billion of loans that finance an Oracle (ORCL) data center in New Mexico are being quoted below face value. Banks quoted the loans at 89 to 91 cents on the dollar, the Financial Times reported on Friday. It is an early sign that investors are demanding a discount to hold AI-infrastructure debt.
The banks arranging the loans, among them Santander and Jefferies, have struggled to sell the debt on to other investors. That sale has stalled over concerns about Oracle's rising borrowing and its creditworthiness, the paper said.
What the debt is for
The loans fund a 1,400-acre data center campus in Dona Ana County, New Mexico, that Oracle has agreed to lease. The site, known as Project Jupiter, is part of Oracle's agreement to supply computing power to OpenAI under Stargate. Stargate is a $500 billion infrastructure plan led by OpenAI, SoftBank and Oracle. Local opposition to the campus, over its effect on water supply and air quality, has added to the doubts, the Financial Times said.
Why the discount matters
Oracle is borrowing heavily to build capacity it has already sold. In its most recent quarter the company reported a $664 billion order backlog and negative free cash flow, a mismatch between its contracted future revenue and the capital required to build the capacity. That backlog, across the AI buildout, sits on our backlog tracker, and whether the spending has outrun the returns is the question behind our AI bubble index.
The strain is not Oracle's alone. Neoclouds such as CoreWeave (CRWV) are funding their own buildouts with convertible notes and other borrowing. What is new here is that banks are quoting a major AI-infrastructure loan package at a discount.
Oracle shares fell about 2% on Friday, closing near $147.60, the day the report appeared.
