AI Data Center Deal Faces Equity Shake-up

Investor sentiment surrounding AI infrastructure financing experienced a jolt following news that Blue Owl Capital will not provide equity for Oracle's significant Michigan data center project. While Oracle and developer Related Digital assert the project continues as planned, with construction anticipated in the first quarter, the alteration in equity structure led to a notable dip in Oracle's stock and a surge in its debt insurance costs. This situation highlights a broader market anxiety concerning the substantial financial commitments fueling the AI boom.

This Michigan facility is reportedly funded through a debt-heavy model, with approximately 80% from debt, led by a $14 billion package from Bank of America, and the remaining 20% from equity, potentially from Blackstone. Blue Owl's decision, reportedly due to less attractive lease and debt terms and concerns about political factors, contrasts with its involvement in Oracle's New Mexico project. The market's reaction emphasizes increasing awareness of the risks associated with large, off-balance-sheet hyperscaler commitments.

Oracle has committed nearly $150 billion to data center leases in the three months ending in November, contributing to a potential $500 billion wave across the tech sector. These obligations, while not traditional debt, expose banks to significant counterparty risk, prompting increased hedging activity. The Michigan project is part of a larger $500 billion initiative for AI infrastructure, indicating that even minor adjustments in deal structures can have a disproportionate impact on market perception.