Afraid of lending! Banks rush to find buyers for Oracle’s $56 billion debt; insurers and private equity firms step in.

Faced with Oracle’s enormous AI infrastructure financing needs, the balance sheets of Wall Street banks are reaching their limits. To mitigate risk exposure and free up capacity for continued lending, banks are scrambling to securitize and rate tens of billions of dollars in loans related to Oracle’s data center projects to sell on to insurance companies and private credit funds.

According to informed sources, at least $56 billion in data center construction loans have received investment-grade ratings. These loans are supported by future lease revenues from the $300 billion deal between Oracle and OpenAI. Obtaining an investment-grade rating for infrastructure loans during the construction phase is extremely rare, enabling banks to bring in insurance and private credit funds that typically avoid such risks.

Although the rating process has opened up new funding channels, the market is not fully convinced. As banks rush to offload debt to reduce excessive risk exposure to the AI financing boom, related financing costs are rising sharply. Some investors are holding off in anticipation of higher future returns, while borrowing cost spreads for new projects have widened to near junk bond levels.

Meanwhile, Oracle has not slowed its aggressive expansion. According to Bloomberg, the company plans to refinance $50 billion through bonds and equity in 2026. This strategy of sticking to “heavy asset” expansion under enormous debt pressure is making banks nervous and attracting short sellers like Michael Burry.

Banks’ Lending Capacity Crisis: Borrowing From Every Possible Source

In traditional project financing models, banks typically hold infrastructure loans for highways or airports themselves. However, the sheer scale of recent AI data center projects has overwhelmed banks’ normal capacity. Tech giants urgently need to find new sources of capital, and banks must clear old accounts before further lending.

“We’ve basically knocked on the door of every project finance bank, but the number of banks is limited,” said a banker familiar with Oracle’s financing activities. “If banks want to keep lending, they have to shed these risks.”

This sense of urgency has prompted banks to push rating agencies to rate loans under construction. According to insiders, the $56 billion in loans covers $38 billion worth of Oracle’s data center facilities in Texas and Wisconsin, and an $18 billion data center campus in New Mexico backed by Blue Owl Capital. Both loans are currently being pitched to investors.

Rating “Reforms” and Insurance Capital Entry

Securing investment-grade ratings for projects under construction is seen in the industry as a “transformative” move. It effectively opens a new pool of institutional capital—mainly insurance companies and pension funds—which previously avoided non-operational assets due to risk.

Christine Brozynski, infrastructure project finance partner at law firm Norton Rose Fulbright, said that although it was once rare to get credit ratings for construction-phase data centers, it is now “becoming common.” She noted that virtually all major data center deals are now trying to obtain credit ratings.

In the latest deal structure, a dozen banks have lent against Oracle’s long-term lease commitments. STACK Infrastructure is responsible for developing the New Mexico data center, and the company confirmed the deal is currently in syndication phase, has received investment-grade ratings, and is proceeding as expected.

Crowded Market and Soaring Financing Costs

Even though the rating hurdle has been passed, investor concerns over Oracle’s aggressive AI spending commitments and piling debt are intensifying.

According to a TD Cowen research report dated January 26, although current deal pricing is at Secured Overnight Financing Rate (SOFR) plus 2.5 percentage points, borrowing costs for newer Oracle-related data center projects not yet sold to investors have expanded to SOFR plus 3 to 4.5 percentage points—close to junk debt pricing.

Some investors have shown hesitation over two Oracle-backed syndicated loans in the market, anticipating future releases of assets with even higher returns. “The elephant in the room is whether there’s enough appetite to invest in these notes—maybe in two weeks a product with a higher yield will come out?” said a senior U.S. project finance banker.

Another investor who purchased other data center project bonds pointed out that banks, nervous about their growing AI financing exposure, are urgently trying to offload committed debt. To close deals, banks have had to offer buyers higher than expected interest rates.

Expansion Against the Wind: $50 Billion New Financing Plan

As banks anxiously search for “next holders,” Oracle has not stopped its capital spending. According to Bloomberg, Oracle announced in its February 1 statement that it plans to raise up to $50 billion through bonds and equity in 2026 to meet the cloud infrastructure needs of major clients such as AMD, Meta, Nvidia, OpenAI, TikTok, and xAI.

Under the plan, Oracle will raise about half through issuance of mandatory convertible preferred securities and up to $20 billion in market equity programs, with the remainder to be raised through the bond market in early 2026. This will further increase the company’s debt burden. According to Bloomberg, Oracle currently carries about $95 billion in outstanding debt, making it one of the largest corporate bond issuers outside the financial sector.

Oracle states this move is to “build additional capacity” and pledges to maintain its investment-grade rating by keeping its debt load within manageable limits.

Short Sellers Attack: Vulnerable “AI Bubble Carrier”

Oracle’s aggressive strategy of shifting from a “light asset” software provider to a “heavy asset” cloud infrastructure operator, and the resulting deterioration of its balance sheet, has raised market caution.

According to Wallstreetcn, Michael Burry, the prototype of “The Big Short,” recently disclosed his short position on Oracle. He criticized the company for “unnecessary heavy asset expansion,” attempting to compete with cloud giants through expensive data center construction, and called it “a pure AI bubble carrier.”

Burry noted that unlike tech giants such as Microsoft, Alphabet, and Meta, which have strong core business moats, Oracle lacks a sufficient safety buffer. Transforming with high risk under massive debt makes its financial structure especially fragile. If AI demand falls short of expectations, Oracle’s minimal margin for error could leave it facing enormous existential risk.

Risk DisclaimerThe market presents risks, and investments should be made cautiously. This article does not constitute individual investment advice and does not take into account any user’s unique investment objectives, financial situation, or needs. Users should consider whether any views, opinions, or conclusions in this article fit their particular circumstances. Investments based on this are at their own risk.