Oracle Sign
Credit traders are buying protection against Oracle Corp. defaulting on its debt, a trend that Morgan Stanley sees continuing in the near term as the tech giant pours billions into artificial intelligence (AI).
The cost to insure against default on the company’s debt over the next five years is hovering near its highest level since October 2023, according to ICE Data Services. Oracle’s 4.9 percent bonds maturing in February 2033 widened 26 basis points (bps), to 83 bps, as of 9:23 a.m. New York time, according to Trace.
Morgan Stanley expects Oracle’s net adjusted debt to more than double, to roughly $290 billion by fiscal year 2028 from around $100 billion, and is recommending that investors buy the company’s five-year credit default swaps (CDS) and its five-year bonds.
“Near-term credit deterioration and uncertainty may drive further bondholder and lender hedging,” Morgan Stanley analysts Lindsay Tyler and David Hamburger wrote in a note Monday.
Investors are rushing to safeguard their exposure as banks prepare to launch a $38 billion debt offering that will help fund data centers tied to the company in what would be the largest such deal for AI infrastructure to come to market, Bloomberg reported last week. The deal will finance data centers in Texas and Wisconsin, part of Oracle’s broader effort to invest $500 billion in AI infrastructure alongside OpenAI, known as Stargate.
When big corporate bond issuers grow debt balances quickly and become a larger weighting in the index, that can lead to interesting trades in the secondary market, according to Nicholas Elfner, co-head of research at Breckinridge Capital Advisors. Oracle has about $95 billion of debt outstanding, making it the biggest corporate issuer outside the financial sector in the Bloomberg high-grade index.
“Index trackers may add to the name to maintain their weight,” he said. “Others with a negative credit view may buy CDS protection to hedge holdings or make a bet on spread widening.”
Last month, Oracle borrowed $18 billion in the corporate-bond market, the high-grade market’s second-largest deal this year.
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