Oracle Corporation (ORCL.US) Returns to the Bond Market! Plans to Issue US$10 Billion in Bonds to Fund AI Infrastructure

Oracle Corporation (ORCL.US), the global cloud infrastructure and database giant, launched a US$10 billion dollar-denominated bond offering on Monday, just days after the company announced a new capital expenditure plan to fund 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 initial price guidance for the longest-dated tranche is a spread of about 3.6 percentage points over U.S. Treasuries. The offering document shows the expected ratings for the bonds: Moody's Corporation "Baa2", S&P "BBB-" and Fitch "BBB". S&P's BBB- rating is the lowest tier in the investment-grade spectrum, just one notch away from the "junk bond" threshold. Net proceeds will be used for general corporate purposes, including capital expenditures, debt repayment, future investments or acquisitions, and payment of cash dividends or share repurchases. The U.S. Securities and Exchange Commission (SEC) EDGAR system shows that Oracle Corporation 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 driver of Oracle Corporation's large-scale financing round is its aggressive bet on AI cloud infrastructure. At its investor day in Las Vegas on October 28, the company explicitly stated that capital expenditure for fiscal 2026 had already doubled year-over-year to US$55.7 billion, and according to FactSet, is expected to jump a further 65% to US$91.9 billion this fiscal year to meet contracted demand from major customers for cloud computing power. To manage leverage, Oracle Corporation promised investors that during the investment cycle from fiscal 2027 to fiscal 2030, it would cap total additional financing at US$20 billion (excluding refinancing of existing debt), with roughly US$10 billion each in equity and debt. This US$10 billion bond offering is the main component of the debt portion. The company also pledged to achieve positive free cash flow in fiscal 2029 and set its target for that year at more than US$30 billion. This "financing discipline" commitment briefly eased market sentimentOracle Corporation's stock surged about 11% the day after the investor day, adding approximately US$42 billion in market value in a single day. AI Financing Concerns and Surging Credit Risk Indicators However, beneath the optimistic expectations, concerns about the massive financing of AI infrastructure continue to simmer in the bond market, and Oracle Corporation is becoming a "bellwether" for investors betting on AI debt risk. This offering comes just days after Microsoft Corporation (MSFT.US) ended a nearly three-month drought in large technology company bond issuance. Bond buyers are currently demanding higher risk premiums to take on the risk of companies tied to the AI investment boom, and have already paid premiums to protect themselves. Since last year, several companies including Oracle Corporation 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 these expenditures will pay off. According to S&P Global, Inc. market intelligence data, the spread on Oracle Corporation's five-year credit default swaps (CDS) earlier last month briefly hit a record of about 320 basis points, nearly doubling for the year. This level typically corresponds to BB/B-rated (high-yield) credit, far higher than what its investment-grade rating would warrant. S&P downgraded Oracle Corporation to BBB- in July this year and warned that if the company's leverage continues to exceed 4x, or if it fails to achieve positive free cash flow by fiscal 2029, another downgrade could follow, at which point Oracle Corporation's debt would fall into junk territory and could trigger forced selling by investment-grade-only institutional investors. According to FactSet data, Oracle Corporation has about US$117 billion in long-term debt outstanding, plus about US$39 billion in capital and lease commitments; analysts expect its free cash flow to be approximately -US$23.7 billion this fiscal year, widening further to approximately -US$36 billion next fiscal year.