Oracle CDS Spreads Widen Amid Junk Rating Fears — SkimNews
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- Oracle has issued $118 billion in long-term debt to fund its AI infrastructure buildout, including a $300 billion deal with OpenAI, while facing projected free cash flow of -$36 billion by 2027.
- S&P downgraded Oracle to BBB- in July, the lowest investment-grade rating, citing sustained leverage above 4x and expectations of weak operating cash flow through 2027 as potential triggers for another downgrade.
- Credit default swap spreads on Oracle’s five-year CDS have widened to 295 basis points, up 287% year-on-year, reflecting heightened investor concern about default risk despite Oracle's investment-grade status.
- Jim Reid of Deutsche Bank identified Oracle as an AI 'bellwether,' warning that a junk rating could force sales by investment-grade-only investors and destabilize broader AI financing.
- Jamie Meyers of Laffer Tengler stated Oracle has committed to defending its investment-grade rating, emphasizing that revenue and earnings are expected to ramp once infrastructure projects come online.
- Vanguard’s Brad Collins noted Oracle has been more diligent in debt issuance than peers and maintains a healthy balance sheet, distinguishing it from high-yield AI firms like CoreWeave.
Why it matters: A downgrade would force Oracle to issue shorter-term, costlier debt and trigger automatic selling by IG-only funds, raising borrowing costs at a time when it needs sustained cheap capital to fund $300 billion in AI infrastructure—delaying returns already projected out to 2029.
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