A bold bet made by JPMorgan and MUFG to underwrite a record $38 billion loan supporting Oracle's new data center projects in Texas and Wisconsin is now nearing completion after facing significant challenges. The deal, initially arranged last August, has involved over twenty banks and other investors joining to share risks, according to sources familiar with the matter. One insider noted that some lenders are still seeking to sell portions totaling less than $1 billion.
For the participating banks, successfully advancing this historically large data center financing deal comes as a relief, especially amid heightened geopolitical tensions and increased perceived risks of Oracle defaulting. However, some observers view the extensive efforts required to attract investors as a cautionary signal. It suggests that market appetite for funding certain artificial intelligence infrastructure projects is weakening, following approximately $275 billion in borrowing for hyperscale data center initiatives since last year.
Lenders have struggled to raise additional funds as part of Oracle’s massive “Stargate” AI infrastructure contract with OpenAI, which initially envisioned up to $500 billion in investments over four years. The financing requirements have become more challenging as the tech giant’s debt insurance costs surged recently amid negative free cash flow, leading to concentrated risk among financial institutions.
Sean McDevitt, a partner overseeing data center operations at consultancy Arthur D. Little, commented, “The market will see a flight to quality, but I don’t believe this is due to slowing AI demand. Rather, reality is catching up with ambition. Demand remains—the challenge now is execution.”
Oracle has pushed the project’s financing to the limits of the project finance construction loan market, where lenders invest in the project itself rather than the company to keep debt off the balance sheet. Insiders indicated that as the deal approaches closure, some banks still hold larger-than-expected debt shares, signaling intensified scrutiny of data center projects targeting Oracle as a primary tenant.
The loans for the Texas and Wisconsin developments, managed by Vantage Data Centers, form part of Oracle’s Stargate agreement. This contract also includes an $18 billion debt package for a New Mexico campus and a $14 billion financing package for a Michigan site, the latter still undergoing finalization after intermittent negotiations with investors.
A $23 billion loan funding the Texas data center hub is expected to close in the coming weeks, followed by a $15 billion debt package for the Wisconsin project. Silver Lake and DigitalBridge Group have jointly committed $3 billion in equity investment for the initiative.
Since syndication began, Oracle’s debt insurance costs have gradually risen, hitting a record high in March and becoming a key indicator for Wall Street to gauge AI-related credit risk. Lenders initially expected subscriptions in December and January but cast a wide net to attract diverse investors, including insurers and infrastructure funds—even reaching as far as Asia, one source revealed.
The financing is structured as a “delayed-draw Term Loan A,” allowing borrowers to withdraw funds in phases. To enhance appeal for smaller subscriptions, investors recently received a 1% upfront fee incentive, with the loan priced 2.5 percentage points above the secured overnight financing rate (SOFR).
Oracle recently appointed a new chief financial officer to oversee its expansive data center development plan. According to S&P Global Ratings, the company’s heavy spending on capacity expansion to support client computing processes is expected to result in operational free cash flow deficits in the coming years. Its fortunes are increasingly tied to OpenAI, creator of ChatGPT, which is also burning cash with no near-term profitability in sight.
A breakthrough for the Michigan project occurred when Oracle showed willingness to tighten certain lease terms. In another twist during the prolonged negotiations, Pimco agreed to anchor the $14 billion debt portion after Bank of America Securities spent months assembling financing.
McDevitt of Arthur D. Little added, “Many participants are moving quickly and aggressively to secure their position in the AI ecosystem. People have been experimenting with different approaches to achieve this goal.”
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