Credit markets are increasingly pricing in a downgrade to junk status for Oracle, a move that would automatically remove $120B of the company's bonds from investment grade indexes. Long-term bond yields climbed to a new record of 8.31% this week, while five-year credit default swaps hit record highs of 237 basis points. Such a downgrade would expand the total junk bond market by roughly 10%. Simultaneously, $18B in construction loans tied to the company's Project Jupiter facility are now trading at approximately 89 cents on the dollar.

The escalation in borrowing costs follows Oracle's decision to issue a force majeure notice to Blue Owl Capital, the developer of its New Mexico AI data center built for OpenAI. Oracle is seeking the right to defer lease payments if the site misses its 2028 opening after state officials twice denied permits for a 17 mile gas pipeline required for power. S&P currently rates the company's debt at BBB-, one notch above junk. Morgan Stanley noted that this credit stress is putting other AI infrastructure debt under scrutiny, potentially raising financing costs for other hyperscalers.