SoftBank Raises Heavily for AI Investments with $11.1 Billion Junk Bond Issuance, Setting a Global Corporate High-Yield Debt Record

SoftBank Group founder Masayoshi Son has long made clear that artificial intelligence is the group's core bet for the future. To raise funds for this ambitious strategy, SoftBank is leveraging global credit markets with unprecedented force. The company last week completed an $11.1 billion high-yield bond issuance, setting a record in the global corporate junk bond market. The financing was largely used to replace the $40 billion bridge loan SoftBank had previously obtained to invest in OpenAI. Faced with enormous funding needs, SoftBank ultimately decided to return to the U.S. institutional bond market, issuing securities to deep-pocketed American institutional investors. This also marked the company's first fundraising in the U.S. market in this manner in more than a decade. To access the roughly $23 trillion U.S. bond and other debt securities market, SoftBank's issuance needed to comply with the conditions of Rule 144A under the U.S. Securities and Exchange Commission (SEC). Over the past decade, SoftBank's smaller overseas bond financings mainly used the Regulation S framework, offering securities only to investors outside the United States. To this end, SoftBank and its legal team spent months preparing, with one key question being whether SoftBank would be deemed an "investment company" under U.S. law. This designation could directly affect its ability to access U.S. capital markets. Under the U.S. Investment Company Act of 1940, if a company holds investment securities exceeding 40% of certain assets, it may be deemed an investment company unless it meets relevant exemption conditions. Once a foreign company is classified in this category, it may need special SEC approval before issuing securities to U.S. investors. In the bond offering memorandum, SoftBank stated that it believes its investment securities account for less than 40% of its non-consolidated assets, positioning itself as a "strategic holding company focused on the technology sector." People familiar with the matter said the final determination was based on a comprehensive test of SoftBank's overall business and assets. One important factor was that SoftBank's approximately 86% stake in chip design company Arm was classified as an operating subsidiary rather than a passive investment security, which helped SoftBank avoid being included in the investment company category as defined by the Investment Company Act. SoftBank declined to comment. Arm (ARM.US) Stock Rebound Creates Window for Massive Bond Issuance Just a few months ago, whether SoftBank could successfully complete such a massive bond financing was still highly uncertain. Affected by a broad pullback in AI-related stocks, rising valuation concerns, and some investors' unease over SoftBank's increasing bets on OpenAI, SoftBank's share price plunged nearly 50% from early June to late July. Since then, SoftBank's stock has rebounded significantly, gaining about 42% year-to-date. People familiar with the matter said Arm's stock strength in particular provided important support for SoftBank and gave the company an opportunity to test bond market demand. SoftBank executives then embarked on an intensive global investor roadshow. In early September, they traveled to London to meet with major European investors and attend leveraged finance conferences hosted by Goldman Sachs Group, Inc. and JPMorgan Chase. Subsequently, SoftBank Chief Financial Officer Yoshimitsu Goto and other executives flew to New York to hold talks with investors at Citigroup's offices to gauge market interest in a potential junk bond issuance. These meetings quickly drew investor responses. People familiar with the matter said many institutions subsequently submitted letters of intent to underwriter banks, indicating they might participate in the subscription if the deal launched. However, U.S. investors still raised numerous questions about SoftBank's complex corporate structure, future investment plans, and progress on data center projects. Financing Against the Tide Amid AI "Bubble" Debate The market environment for SoftBank's financing was also less than ideal. U.S. Treasury yields climbed sharply, and discussions about a debt-fueled "AI bubble" intensified. At the same time, several AI industry leaders began warning about the safety risks posed by advanced AI models and calling for a slowdown in frontier model development. OpenAI CEO Sam Altman also said the company would not go public this year, meaning investors awaiting an OpenAI exit channel will need to remain patient. For SoftBank, which has already placed enormous capital bets on OpenAI, this also adds uncertainty to its portfolio valuation and monetization prospects. Resona Holdings strategist Hiroki Takei noted that for investors in AI-related bonds, the risk is not just the extreme scenario of the AI boom completely collapsing. He said that if the current model of "investment front-loading, commercial monetization lagging" persists, massive AI capital expenditures could continuously erode corporate free cash flow, making companies more dependent on external financing and refinancing. Once AI demand subsequently slows, credit spreads could widen significantly. However, at this stage many investors still view these scenarios more as risks to consider in due diligence rather than an imminent industry reversal, and the global AI debt financing boom therefore continues. To advance SoftBank's massive deal, banking teams in Asia and Europe even worked through the weekend before the issuance. People familiar with the matter said the relevant meetings spanned three time zones, with staff in London and Tokyo communicating with U.S. investors overnight. Nearly 10% Yield Ultimately Attracts Investors New complications emerged during the issuance process. News that SB Energy, a data center service provider backed by SoftBank, was postponing its initial public offering (IPO) triggered further investor concerns. Underwriter banks subsequently received a flood of questions about OpenAI's IPO timing, SB Energy's postponed IPO, and what these changes meant for SoftBank's assets. Ultimately, the high yield offered by SoftBank became the key to attracting investors. The longest tranche in the issuance was 7.5 years, with a final priced yield of 9.75%, approaching double-digit levels. Both S&P Global, Inc. ratings and Fitch assigned SoftBank a "BB+" rating, the highest level in both agencies' non-investment-grade categories. SoftBank primarily measures its debt level through loan-to-value (LTV), calculated as net debt as a proportion of the value of its equity holdings. The company generally commits to keeping LTV below 25%, allowing it to rise to 35% only under special circumstances. As of the end of June this year, the metric was only 13%. Satoru Aoyama, senior director of Asia-Pacific corporate ratings at Fitch, said investors understand the risks of SoftBank as a BB+ issuer, and a bond yield approaching 10% is already close to the return level of equity investments. At the same time, however, SoftBank did not issue bonds with maturities as long as 30 years, and the company's financial discipline in maintaining a low LTV also provides creditors with a certain degree of indirect protection. SoftBank's record-breaking bond issuance is the latest example of how the AI investment boom is reshaping global credit markets. As data centers, chips, computing infrastructure, and AI model development consume increasingly enormous amounts of capital, technology companies' reliance on debt financing is deepening. Aoyama said that although the market is still debating the risks that excessive borrowing in the AI industry may bring, financing demand is clearly growing rapidly and has already spread across the entire AI supply chain.