Oracle's 5-year credit default swaps dropped 17% after the company announced plans to raise $45-50 billion in debt and equity financing for 2026. The move addresses investor anxiety about Oracle's aggressive AI data center expansion, which had pushed CDS costs to near-three-year highs last week.
The financing plan matters because Oracle's net adjusted debt is projected to more than double from $100 billion currently to $290 billion by FY2028. CDS costs hit 1.25 percentage points per year last week - approaching levels last seen during the 2008 financial crisis (record 1.98%) - as investors hedged against funding gaps and questioned how Oracle would finance its commitments to Nvidia, Meta, OpenAI, and xAI.
What changed: Including equity in the financing mix signals Oracle won't rely solely on debt. Barclays upgraded Oracle's debt to overweight, noting "equity financing significantly inhibits the downside for credit." The company is preparing a $38 billion debt offering specifically for Texas and Wisconsin data centers.
The trade-offs: While debt investors welcomed the clarity, Oracle's stock dropped 3% Monday on dilution concerns. The at-the-market equity offering will likely represent about 10% of total traded volume over the coming weeks. UBS warned that raising $20-25 billion through stock sales "may not be warmly received by all equity holders."
Context for enterprise buyers: At least $300 billion of Oracle's $523 billion in contracted cloud commitments ties to OpenAI, according to D.A. Davidson. This concentration risk explains why the market reacted strongly to Oracle's earlier reluctance to detail financing plans during December earnings.
The broader pattern: Tech sector CDS trading surged 90% since September amid default anxiety across the industry. Oracle's case illustrates the tension between aggressive AI infrastructure investment and balance sheet discipline - a calculation every enterprise tech leader evaluating cloud providers should understand.
Morgan Stanley had urged clients to buy CDS protection outright ahead of the announcement. The subsequent drop suggests the financing plan, while dilutive to equity holders, provides enough clarity to reduce near-term credit risk.