Oracle’s credit default swaps have seen a significant drop, signaling a renewed investor confidence in the software giant’s financial stability. This positive shift follows Oracle’s announcement of a substantial capital raise, aiming for $50 billion through a blend of debt and equity. The move is seen as a strategic maneuver to shore up its finances as it aggressively expands its artificial intelligence infrastructure.
“The infusion of equity financing is a crucial de-risking factor for Oracle’s credit profile,” commented Andrew Keches, a credit analyst at Barclays, in a client note. Keches has since upgraded Oracle’s debt to an “overweight” rating, predicting further compression in its credit default swap (CDS) spreads.
Credit default swaps function as a form of insurance for bondholders, providing protection against the borrower’s default. In recent months, Oracle’s CDS had surged amid market anxieties regarding the escalating costs of its massive data center buildouts and their potential impact on the company’s balance sheet. This concern was amplified by an $18 billion bond sale in September, one of the largest in the tech sector’s history.
The market has increasingly viewed Oracle’s 5-year CDS as a barometer for sentiment surrounding the AI boom. Keches noted that Oracle had been caught in a “peak fear” cycle, where negative market reactions often overshadowed positive developments.
The company’s plan to raise between $45 billion and $50 billion this year is intended to fund the expansion of its cloud infrastructure, crucial for meeting the burgeoning demand from major clients like Nvidia, Meta, OpenAI, and Elon Musk’s xAI. The inclusion of equity in this financing strategy is a clear message to bond investors that Oracle is not solely relying on debt, thereby diversifying its funding sources and potentially improving its leverage ratios.
Despite this strategic move, Oracle’s stock has experienced considerable volatility, halving from its September peak. This decline was largely driven by fears surrounding its financing plans and its significant reliance on OpenAI. Analysts at D.A. Davidson estimate that at least $300 billion of Oracle’s $523 billion in remaining performance obligations are linked to its partnership with OpenAI.
Following its December earnings report, Oracle’s executives opted to withhold a comprehensive financing plan, which further unnerved the market and contributed to the rise in CDS prices.
While the recent capital raise announcement has bolstered confidence among debt investors, the equity component of the offering has led to a near-term dilution concern for existing shareholders, causing the stock to dip. Traders suggest Oracle is employing an “at-the-money” offering strategy, which could involve selling approximately 10% of its traded volume over the coming weeks. Analysts at UBS have cautioned that raising between $20 billion and $25 billion through stock sales might not be universally welcomed by all equity holders.
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/16910.html
