Oracle(ORCL.US) Successfully Secures Latest Funding to Calm Market: CDS Plunges 17%, Easing Concerns Over "AI Debt Wave"

Oracle (ORCL.US) plans to raise $50 billion through debt and equity financing, boosting investor confidence that the company can avoid a credit rating downgrade as it funds its artificial intelligence initiatives. Following this news, the 5-year credit default swap (CDS) price plummeted 17%. Meanwhile, analysts also noted that this move helps ease market concerns over the tech giants’ massive debt financing.

Dual Debt and Equity Financing Eases Market Concerns, Credit Default Insurance Costs Decline

For weeks, due to market worries that Oracle’s investments in artificial intelligence, even if profitable, would take years to pay off, its bond prices have remained at junk levels. However, on Monday, the software giant’s $25 billion bond issuance attracted record-breaking demand, alleviating some of these concerns.

Last Sunday, Oracle announced it would issue an additional approximately $25 billion in equity on top of its debt financing this year, sparking a shift in market sentiment. This move reassures investors that the company’s large-scale investments in data centers will not overly strain its balance sheet. The company’s bonds and stocks mostly rose during the day. Some investors believe that the optimism generated by Oracle’s financing could spill over into the broader credit markets.

Mark Clegg, senior fixed income trader at Allspring Global Investments, which manages about $628 billion, said, “Oracle’s deal may signal that the investment-grade corporate bond market can start taking risks again. Large AI financing projects have long been a nightmare for markets, expected to bring significant supply in the coming quarters. But now, the situation has changed — the nightmare is gone.”

In a Monday report to clients, Barclays credit analyst Andrew Keches wrote, “Equity financing significantly mitigates downside credit risk.” Keches upgraded Oracle’s debt rating to “Overweight,” suggesting its CDS prices should further decline.

Following the bond issuance announcement, Oracle’s long-term bonds rose in the secondary market, and the measure of its credit risk dropped to the lowest level since April 2021. Oracle sold bonds in eight tranches, with maturities ranging from three to forty years. The longest-maturity bonds yielded 1.95 percentage points above U.S. Treasuries, below the previously expected 2.25 percentage points.

Analysts note that Oracle plans to issue up to $25 billion in eight bond tranches. With financing certainty now in place, along with an equal amount of equity financing to support its AI capital expenditure plans, this issuance is expected to trigger a rally in bonds and CDS markets after a significant downturn since Q3 2025. After rating agencies confirmed Oracle’s BBB medium investment grade rating, analysts believe the entire bond market offers strong investment value, especially for long-term investors. The spread over 40-year U.S. Treasuries is expected to narrow by 50 basis points over time, compared to the initial pricing of U.S. Treasuries plus 225 basis points.

Oracle last entered the U.S. corporate bond market in September last year, raising $18 billion through a massive bond issuance, one of the largest debt offerings in tech industry history. By the end of last year, concerns about Oracle’s large data center projects damaging its balance sheet caused CDS prices to soar, as debt investors faced risks.

CDS acts like insurance for investors, with buyers paying premiums to hedge against the borrower’s potential default. The market has viewed the five-year CDS as a way for investors to hedge risks associated with the AI boom. Over the past few months, Oracle has been in a “panic peak” cycle, with markets reacting negatively to nearly any news.

Oracle’s Latest Bond Issuance Helps Ease AI Debt Wave Concerns

This year, U.S. high-grade corporate bond issuance could reach record levels. Morgan Stanley strategists predicted last year that issuance might total around $2.25 trillion. However, investor demand remains strong, partly due to robust corporate profits. Bond risk premiums are hovering near multi-decade lows.

Investors subscribed to over $129 billion of Oracle bonds, surpassing the previous record of $125 billion set when Meta Platforms (META.US) issued $30 billion in October. In a statement released on Sunday, Oracle said it does not expect to issue bonds in 2026. Some bond investors had previously anticipated Oracle would issue between $40 billion and $60 billion this year.

The scale of AI-related bonds issued by tech companies in the coming years will be a key factor influencing market performance. Alphabet (GOOGL.US), Amazon (AMZN.US), Meta, and Oracle are expected to issue about $93 billion in U.S. investment-grade bonds by 2025, accounting for roughly 6% of last year’s total bond issuance. Although the $8 trillion market has easily absorbed the initial wave of AI-related bonds, JPMorgan forecasts about $300 billion annually in AI and data center-related transactions over the next five years.

These bonds have already been issued this year. IBM (IBM.US) issued nearly $7.5 billion in U.S. dollar and euro bonds last week, and more companies are expected to follow after their earnings reports in the coming weeks. Nathaniel Rosenbaum, a credit strategist at JPMorgan, said that February and March are typically the busiest months for the industry, but the next two months are expected to be even more active than usual.

In addition to issuing corporate bonds, banks have facilitated hundreds of billions of dollars in data center transactions, with Oracle as the anticipated tenant for these data centers. This includes a $38 billion loan for new facilities developed for Vantage Data Centers in Wisconsin and Texas, part of a large AI infrastructure contract with OpenAI.

Due to market concerns over Oracle’s financing plans and its reliance on OpenAI, the company’s stock has fallen by half since reaching its peak in September. According to DA Davidson analysts, at least $300 billion of Oracle’s remaining $523 billion in contractual obligations are related to OpenAI.

However, these tech companies generally have solid balance sheets and strong profitability. For example, Oracle is also raising equity capital, including $5 billion in mandatory convertible preferred stock. Sources say the preferred stock has a dividend rate of 6.25% to 7.25%. Additionally, the company plans to sell up to $20 billion worth of stock in phases through the market.

Oracle’s heavy borrowing reflects the scale of financing needed for AI growth. The company is building additional capacity to meet the demands of its largest cloud clients, including AMD (AMD.US), NVIDIA (NVDA.US), Meta Platforms, OpenAI, TikTok, and xAI.

Sources say that Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, and JPMorgan are managing this issuance. Before Monday, Oracle’s debt in the institutional U.S. high-grade corporate bond index was about $95 billion, making it the largest issuer outside the financial industry.