AI lenders are already backing away. Nobody has told the stocks yet
Banks that lent $18 billion for a data center for OpenAI are now valuing it at a discount and can't sell it. The stock market is counting the same campus into earnings at full price. One of them is wrong.
Key points
Banks are quoting the $18 billion in loans for the OpenAI campus below par and can't sell them
The day after a court unblocked the construction permit, the project's debt remained below par
The cost of insuring Oracle's debt against default has climbed this year above its December 2008 level
The bid-to-cover ratio on hyperscaler bonds has fallen from five times to less than two times
Oracle's CFO described a change in a conference call that is rewriting the terms for the entire industry
The ten cents the stock market overlooked
On Friday, September 18, the Financial Times published a report that would have set off alarm bells in the bond market but went almost unnoticed in equities. Banks in the syndicate, including Santander and Jefferies, are quoting the roughly $18 billion in loans for the construction of the Project Jupiter campus in New Mexico, which Oracle $ORCL is to lease to OpenAI, at 89 to 91 cents on the dollar. The attempt to sell down the debt to other investors stalled, and the banks are holding it on their own books in larger volume than planned.
What this means in practice: a loan made last autumn at 100, today no one wants to buy above 90. On $18 billion, that is a paper loss of around $1.6 to $2 billion, and this on a project that has not yet started operating and in which no one has gone bankrupt. The market is simply saying that the probability of repayment in full and on time has fallen.
The irony is in the timing. The day before, on September 17, the New Mexico Supreme Court lifted the stays that had blocked the air quality and water pumping permit proceedings for the construction site. It was good news for the project, yet the debt remained below par. Oracle shares fell 1.98% that day to $147.61, the Nasdaq index added 0.4%, Nvidia $NVDA rose 1.3%, Micron 3.9% and Sandisk 11%. The stock market took nothing away from the credit market's warning.