TLDR
- Oracle seeks to raise $15 billion through corporate bond sales to fund AI cloud infrastructure spending
- The debt sale includes up to seven parts, featuring a rare 40-year bond with initial pricing discussions around 1.65 percentage points above Treasury rates
- Oracle’s cash flow turned negative for the first time since 1992 due to upfront costs from major cloud deals with OpenAI and Meta
- The company’s stock fell nearly 3% on the news as investors weigh increased leverage concerns
- Oracle’s previous $8 billion bond sale in January attracted $35 billion in orders, indicating strong investor demand
Oracle Corporation is moving to raise $15 billion through a corporate bond sale as the database software company doubles down on its cloud infrastructure investments. The massive debt offering comes as Oracle works to fulfill major contracts with artificial intelligence companies.
The technology company plans to sell bonds in as many as seven different parts. One unusual feature is a 40-year bond, a rarity in corporate debt markets.
Initial pricing discussions for the four-decade bond center around 1.65 percentage points above comparable Treasury securities. Oracle’s stock dropped 2.97% to $304.73 on Wednesday following news of the bond sale.
The fundraising reflects Oracle’s push to catch up in the competitive cloud infrastructure market. For years, the company lagged behind Amazon, Microsoft, and Google in this space.
Oracle has now secured major cloud deals with high-profile customers including OpenAI and Meta Platforms. These contracts require substantial upfront investments in data centers and computing infrastructure.
Cash Flow Pressure Mounts
The spending spree has taken a toll on Oracle’s finances. The company’s cash flow turned negative this year for the first time since 1992.
Analysts expect this trend to continue for several years. Free cash flow projections show the metric remaining negative until returning to positive territory in 2029.
Oracle is projected to spend hundreds of billions of dollars over the next several years to lease and power data centers. This represents a major shift in the company’s capital allocation strategy.
The bond proceeds can be used for various purposes including capital expenditures, future investments, acquisitions, or general corporate needs. Oracle may also use funds to repay existing debt.
Debt Load Increases
Oracle already carries substantial debt on its balance sheet. The company had approximately $95 billion in long-term debt outstanding at the end of August.
The new $15 billion bond sale will push that figure even higher. Bloomberg Intelligence analysts note that Oracle’s leverage relative to earnings may climb, though the company should maintain its investment-grade credit ratings.
Credit default swap prices for Oracle debt jumped to their highest levels since May 7. This indicates growing investor concern about the company’s credit risk.
Leadership changes add another layer of uncertainty for investors. Oracle announced earlier this week that longtime CEO Safra Catz would be stepping down from her role.
Jefferies analyst Brent Thill highlighted concerns about potential changes to Oracle’s financial discipline under new management. Catz had been known for maintaining tight cost controls during her tenure.
Oracle’s last major bond sale took place in January when the company raised around $8 billion. That offering attracted $35 billion in orders, demonstrating strong investor appetite for Oracle debt.
Major Wall Street banks are handling the current bond sale. Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, and JPMorgan Chase are leading the transaction.
Oracle shares have nearly doubled in value this year as investors bet on the company’s AI infrastructure opportunities. The stock closed at $304.73 on Wednesday.
