Oracle (ORCL.US), the global cloud infrastructure and database giant, launched a $10 billion US dollar bond offering on Monday, just days after announcing new capital expenditure plans to finance its artificial intelligence (AI) infrastructure investments.
According to a person familiar with the matter, the company is marketing the bonds in six tranches with maturities ranging from two to 20 years. The person said the longest-dated tranche carries initial price guidance of about 3.6 percentage points over US Treasuries. The prospectus shows the bonds are expected to be rated "Baa2" by Moody's, "BBB-" by S&P, and "BBB" by Fitch. S&P's BBB- rating sits at the lowest rung of investment grade, just one notch away from junk status.
Net proceeds will be used for general corporate purposes, including capital expenditures, debt repayment, future investments or acquisitions, and the payment of cash dividends or share buybacks. The SEC's EDGAR system shows Oracle filed an automatic shelf registration statement (S-3ASR, File No. 333-299752) on November 2 to provide the basis for this bond offering.
The direct motivation behind Oracle's large-scale fundraising is its aggressive bet on AI cloud infrastructure. At its Las Vegas investor day on October 28, the company made clear that capital expenditure for fiscal 2026 had already doubled year-on-year to $55.7 billion, and according to FactSet, is expected to surge a further 65% to $91.9 billion this fiscal year to meet signed cloud computing demand from major customers.
To manage leverage, Oracle promised investors that during the fiscal 2027-2030 investment cycle, it would cap total additional financing at $20 billion (excluding refinancing of existing debt), split roughly evenly between equity and debt at about $10 billion each. This $10 billion bond offering is the main component of that debt portion. The company also committed to achieving positive free cash flow in fiscal 2029, setting a target of more than $30 billion for that year.
This "financing discipline" commitment briefly eased market sentiment — Oracle shares jumped about 11% the day after the investor day, adding roughly $42 billion in market value in a single day.
AI Financing Concerns and Surging Credit Risk Indicators
Yet beneath the optimistic expectations, concerns about the massive financing of AI infrastructure continue to simmer in the bond market, with Oracle becoming a bellwether for investors betting on AI debt risk. The offering comes just days after Microsoft (MSFT.US) ended a nearly three-month drought in large tech company bond issuance.
Currently, bond buyers are demanding higher risk premiums to take on exposure to companies tied to the AI investment boom, and have already paid a premium to protect themselves. Since last year, a number of companies including Oracle have flooded the market with hundreds of billions of dollars in borrowed funds to finance new data centers and chip purchases, raising questions about whether the spending will generate returns.
According to S&P Global Market Intelligence data, Oracle's five-year credit default swap (CDS) spread touched a record high of about 320 basis points earlier last month, nearly doubling over the year. That level typically corresponds to BB/B (high-yield) credit, far above the pricing its investment-grade rating would warrant. S&P downgraded Oracle to BBB- in July this year and warned it could downgrade again if the company's leverage persists above 4x or if it fails to achieve positive free cash flow before fiscal 2029, at which point Oracle's debt would fall into junk territory and could trigger forced selling by investment-grade-only institutional investors.
According to FactSet data, Oracle has about $117 billion in long-term debt outstanding, plus roughly $39 billion in capital and lease commitments; analysts expect its free cash flow to be about negative $23.7 billion this fiscal year and to widen further to about negative $36 billion next fiscal year.
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