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Banks are now trying to offload the AI data center debt they just underwrote
Startup Fortune • • business
Key Points:
- JPMorgan, Morgan Stanley, SMBC, and MUFG are attempting to offload portions of their AI-related debt exposure through risk transfers, signaling concerns about concentration risk in AI-linked loans.
- A notable example is the prolonged six-month effort by banks including JPMorgan and MUFG to distribute $38 billion in construction debt for Oracle-leased data centers in Texas and Wisconsin, with some lenders willing to sell at a discount.
- Oracle's credit risk has increased, with its credit default swaps rising to levels not seen since 2009 and its credit rating downgraded to BBB-, reflecting heightened concerns about its heavy debt load and funding needs.
- Demand for bonds from major AI and tech companies like Alphabet, Amazon, Meta, Microsoft, and Oracle has declined, with order books shrinking significantly since early 2023, indicating tougher conditions for raising capital.
- Rising Treasury yields and higher risk-free borrowing costs are compounding financing challenges for AI infrastructure projects, leading investors to favor data centers leased to investment-grade hyperscalers over riskier credits.
