Banks try to sell down $38 billion in Oracle data center debt after six months
JPMorgan, Morgan Stanley, SMBC and MUFG have been exploring significant risk transfers for $38 billion in construction debt tied to a Texas and Wisconsin data center project leased to Oracle, according to a report from the Financial Times, as reported on startupfortune.com. Six months ago, banks were racing each other to underwrite data center loans tied to Oracle, Meta and the rest of the AI buildout. Now some of the same banks are trying to get that debt off their books.
These deals let a bank keep a loan on paper while shifting its riskiest slice to outside investors. The banks are doing this because they are bumping up against internal limits on how much AI-linked exposure any one lender can hold. One case shows how stuck this has gotten: a group of banks 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 has reported. Some lenders are now willing to sell pieces of it to non-bank buyers at a discount, just to move it. Six months is a long time to sit on debt nobody underwrote to hold forever.
The banks are exploring significant risk transfers because they are bumping up against internal limits on how much AI-linked exposure any one lender can hold. This maneuver costs someone: the banks reportedly discount pieces to attract non-bank buyers, eating a spread they would have earned in a clean syndication. They also retain counterparty and operational risk from the transfer structure itself—if the outside investor providing protection fails, the risk snaps back.
The banks' original underwriting assumed they could sell at or near par to a broad syndicate. Instead they face a market that demands a premium to hold AI-linked risk, and a borrower whose credit quality is deteriorating while they hold the bag. S&P had already cut Oracle's credit rating to BBB-, a single notch above junk, back in July. The company is reportedly targeting more than $40 billion in additional debt and equity this fiscal year. That is on top of the $18 billion in bonds it sold in a single day last September, and the money is needed to keep funding its Texas, Wisconsin and New Mexico sites.
When demand thinned, the banks could not absorb more AI exposure without breaching their own limits, yet they could not sell the debt at acceptable prices. Risk transfers are the pressure valve: they let the banks technically retain the asset while economically laying off default risk, satisfying internal risk models without requiring a market-clearing sale.
The sharpest open question is whether the risk transfer market itself can absorb these volumes without the same indigestion that struck the primary loan market. If it cannot, banks will face a choice between breaching internal limits, taking deeper discounts, or simply stopping new AI underwriting—at which point the SPV pipeline freezes and the data center buildout must find another funding path.