Oracle is in a difficult position. It already is burning cash, with plans to burn tens of billions more over the next several years as it tries to transform itself from a leading software company into an AI cloud-computing giant—leasing out the vast clusters of advanced computer chips needed to power applications like OpenAI’s ChatGPT.
Rated two notches above speculative-grade territory, Oracle’s bonds now carry yields that are higher than those of almost any of its investment-grade tech peers. Jordan Chalfin, a senior analyst at the research firm CreditSights, said that Oracle could issue around $65 billion more bonds over the next three years.
A modest increase in its cost of debt shouldn’t make a big difference to the company, given that its interest expense would still be dwarfed by its capital expenditures. But Oracle, Chalfin said, needs to maintain investment-grade ratings, because the amount of funding available to lower-rated companies simply isn’t enough to support its needs.
In recent weeks, there has been an uptick in trading of Oracle credit-default swaps—an instrument sometimes associated with the 2008-09 financial crisis. Though bond investors generally saw nothing surprising in the activity, focus on the topic nonetheless helped weigh on Oracle shares, which have dropped 24% this month.