Banks Seek to Offload Risk From AI Data Center Debt

Summary

JPMorgan, Morgan Stanley, SMBC and MUFG are exploring significant risk transfers to move the riskiest portions of AI-linked data center loans to outside investors while keeping the loans on their books. The banks are approaching internal limits on exposure to the sector, and a group including JPMorgan and MUFG has spent more than six months trying to distribute $38 billion of construction debt tied to Texas and Wisconsin data centers leased to Oracle. Some lenders are reportedly offering pieces at a discount to non-bank buyers. Credit concerns have intensified: Oracle’s five-year credit-default-swap spread reached about 151 basis points in early October, S&P cut the company to BBB-, and Oracle is reportedly seeking more than $40 billion in additional debt and equity after selling $18 billion of bonds in one day last September. Investor demand for bonds from major technology companies has also weakened, with order books falling from about five times the amount offered in February to less than twice the amount by July. Higher Treasury yields have made financing more expensive, although analysts disagree about how much of that move was caused by AI borrowing rather than inflation and government deficits. Risk is also being priced by asset quality: bonds tied to CoreWeave-leased facilities yield 7.00% to 9.875%, compared with 5.70% to 7.875% for bonds leased to hyperscalers. The developments challenge the assumption that AI infrastructure debt will remain easy to place on reasonable terms.