Banks that spent months racing to underwrite AI data center loans are now trying to get that debt off their books. JPMorgan, Morgan Stanley, SMBC and MUFG have been exploring significant risk transfers, according to a Financial Times report cited by Startup Fortune, deals that let a lender keep a loan on paper while shifting its riskiest slice to outside investors. The reason is simple: they are bumping up against internal limits on how much AI-linked exposure any single bank can hold.
One case shows how stuck the process has become. A group including JPMorgan and MUFG has spent more than six months trying to distribute $38 billion in construction debt tied to a Texas and Wisconsin data center project leased to Oracle, Bloomberg reported. Some lenders are now willing to sell pieces to non-bank buyers at a discount, just to move them. That is not how banks behave when they are confident in a credit.
Oracle credit default swaps and the debt pile
Oracle is the clearest signal of where sentiment has moved. Its five-year credit default swaps, the cost of insuring against a default, climbed to around 151 basis points in early October, levels last seen in 2009, according to market data cited by Bloomberg. S&P had already cut Oracle's credit rating to BBB- in July, a single notch above junk, as the company's AI spending outpaced its cash flow.
The company is reportedly targeting more than $40 billion in additional debt and equity this fiscal year, on top of the $18 billion in bonds it sold in a single day last September. That money is needed to keep funding its Texas, Wisconsin and New Mexico sites, and it has also sued Wisconsin's Public Service Commission over a rule that could force it to post more than $7 billion in collateral for its Port Washington campus.
Demand for AI-related paper has thinned out across the board. Bonds from Alphabet, Amazon, Meta, Microsoft and Oracle now trade at a premium to similarly rated non-AI corporate debt, and order books for their offerings have shrunk from roughly five times the amount on sale in February to under two times by July, per Bloomberg. That is the difference between a bond that sells itself and one a bank has to work to place.
