Oracle’s credit market is sending a signal that is harder to ignore. On Thursday, the cost of insuring Oracle’s debt through credit default swaps reached a record high. At the same time, the yield on the company’s 6.7% bonds due in 2056 moved above 8% for the first time.
That does not mean Oracle is on the verge of default. It does show that investors are demanding more compensation to take on its debt.
Oracle currently carries a Baa2 rating from Moody’s and BBB- from S&P, both at the lowest investment-grade level. A downgrade could push the company into junk territory. According to the analysis cited by Seeking Alpha, that could affect roughly $120 billion of Oracle bonds held in investment-grade indexes.
Why did Oracle’s debt suddenly become a bigger concern?
Oracle has been spending at a remarkable pace to expand its data-center capacity. In its latest results, the company reported $28.5 billion in capital spending during a single quarter. Free cash flow was negative by $5.4 billion during the period.
The company has also guided toward roughly $90 billion to $95 billion in capital expenditure for the full year.
That spending is tied closely to the AI infrastructure boom. Cloud capacity, data centers, networking equipment and advanced chips all require enormous amounts of capital before they can generate revenue.
