Banks set to launch $38B debt deal to fund Oracle AI data centers

Banks are preparing a $38 billion debt deal, set to be finalized as soon as Monday, to finance data centers associated with Oracle Corp. According to individuals with knowledge of this information, this is the largest deal for artificial intelligence infrastructure to hit the market.

Banks, including JPMorgan Chase & Co. and Mitsubishi UFJ Financial Group, are leading the deal, which is divided into two distinct senior secured credit facilities, according to the people, who asked not to be identified discussing private matters. 

One $23.25 billion package will be used to help finance a data center in Texas, and another $14.75 billion facility will help fund a project in Wisconsin, according to the people.

Vantage Data Centers is building the two data centers, which Oracle will ultimately use to host OpenAI, Bloomberg News has reported. The projects are part of Oracle’s larger goal to invest $500 billion into AI infrastructure alongside OpenAI in a project that it calls Stargate.

Oracle’s $500B ‘Stargate’ Vision drives massive data center expansion

Others, including Wells Fargo & Co., BNP Paribas SA, Goldman Sachs Group Inc., Sumitomo Mitsui Banking Corp., and Societe Generale SA, have been designated portions of the financing package after the first round of selecting underwriters, the people said.

Spokespeople for JPMorgan, MUFG SMBC, and OpenAI declined to comment. Contacted for comment, Oracle, Vantage, and the rest of the banks did not immediately respond.

Meanwhile, Oracle’s new dual chief executives recently defended the firm’s massive new investment in data centers, stating that it will provide computing firepower and a suite of bundled services that will make artificial intelligence more useful for businesses.

“We’re really in a unique situation to deliver what we call applied AI,” said Mike Sicilia, the former president of Oracle Industries, who was appointed as the CEO of the company last month. That includes infrastructure, analytics, and applications, he said in an interview.

Clay Magouyrk, Oracle’s former president of cloud infrastructure, was also named a chief executive. They arrive just as fears of an A.I. bubble are metastasizing rapidly.

Oracle shares spiked by over 40% last month after the cloud firm said that it had added $317 billion in future contract revenue as part of its latest quarter that ended on Aug. 31. A lot of that new revenue originated from a five-year, $300 billion deal with OpenAI.

Investors and tech analysts have raised questions over the past month about how much the new build-out depends on OpenAI, which won’t become profitable until 2029, according to Sam Altman, the chief executive of the ChatGPT maker. Credit ratings firm Moody’s last month indicated risks to Oracle’s balance sheet due to the extent to which its future AI data centers rely on OpenAI.

At the beginning of October, Oracle shares fell as much as 7.1%—though they quickly recovered—after a report suggesting that its margins on renting specialized Nvidia chips were razor-thin.

Investor demand for AI debt surges as Vantage and Meta deals set new benchmarks

Investors across the spectrum have been eager to gain early exposure to AI, with banks and private credit firms vying to lead vast debt packages that finance the boom. Meta Platforms Inc. recently chose Pacific Investment Management Co. and Blue Owl Capital Inc. to arrange a $29 billion debt and equity deal for the company’s data-center expansion in rural Louisiana. 

The Vantage debt comes about a week after other bonds issued to facilitate the Meta deal began trading in secondary markets, jumping as much as 10 cents on the dollar and yielding Pimco paper profits of approximately $2 billion.

Both Vantage facilities are due to mature in four years, with two one-year extension options, and priced at around 2.5 percentage points over the benchmark, the people said. Like the project and commercial real estate financings, the loans are to be structured as interest-only during construction but amortize once operations begin, according to the people.

The managers finalized the second round of underwriting early this week, at which the debt was allotted to other banks and institutional investors, they said.

Join a premium crypto trading community free for 30 days - normally $100/mo.