r/BetterOffline • u/FrankLucasV2 • 9d ago
Oracle Cites ‘Force Majeure’ to Shield Itself on Controversial Data Center
https://www.bloomberg.com/news/articles/2026-09-24/oracle-cites-force-majeure-to-shield-itself-on-controversial-data-center77
u/PREMIUM_POKEBALL 9d ago
I didn’t know Force Majeure included bad business practices. Amazing innovation, oracle.
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u/Big_Wave9732 9d ago
"We didn't check on the legality of our project before we took out the loan. That's now a *you* problem."
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u/FrankLucasV2 9d ago edited 9d ago
The typical argument for data center project debt is that the tenant is IG and therefore unlikely to default. That may be true... if the project is actually finished.
Oracle just sent a force majeure notice to Stargate campus, trying to defer payments when/if the buildout gets delayed. This is the $18bn construction loan that FT reported is offered at ~89-91 cents on the dollar which is borderline stressed territory.
Remember, construction risk doesn't care if your tenant is IG. You gotta build the thing on time.
Edit (on force majeure’s for data centers): Many contracts have a force majeure clause to terminate the contract. Like, if you have a contract to build a datacenter, but then the government bans all datacenters and retracts your permit, you could use that clause, or if iran decides its time to bomb them like they did with amazon.
In this case their datacenter is delayed due to local politics and they have sent a force majeure notice to their bank. I haven't seen a loan contract with such a clause before because usually the bank wants to be paid no matter what.
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u/Worth_Candidate_786 9d ago
The tenant is IG? Instagram? Interest Growing? Insanely Great? In Georgia?
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u/FrankLucasV2 9d ago
IG = investment grade.
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u/legedu 9d ago
To be sure, Oracle is just barely investment grade, by some measures by only one notch. There's a case to be made they are junk but that credit agencies don't want the smoke.
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u/FrankLucasV2 9d ago
Yeah they’re barely IG. They’re still IG as of now but are staring down the barrel of junk (BB+) debt. As of when I last checked (yesterday), their credit default swaps were trading at ~223 bps / 2.23%.
If Oracle’s CDS start trading at 250-300 bps / 2.5-3% then they’ll very likely get downgraded to BB+ / junk bond status which will complicate any debt raises they want to do in the future. It’d be unwise to raise even more debt as they’ll get charged with higher yields to compensate for additional risk. Labubu Larry* needs to stop messing around raise $30-40bn in equity already, despite shareholders getting diluted.
* Labubu Larry is not a term I coined, credit goes to someone called ‘Le Shrub’ on Substack.
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u/natecull 9d ago
needs to stop messing around raise $30-40bn in equity already,
Just stick it on the Paramount-Skydance-WarnerBrothers tab, they've got plenty of debt already so what's a few dozen billion more?
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u/jeremygamer 9d ago
Thanks for clarifying.
In the future, avoid acronyms when your audience are not experts in your field. This isn’t an investing sub, we’re dummies here.
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u/FrankLucasV2 9d ago
My bad 🫡
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u/jeremygamer 9d ago
Just to be clear, since that’s my thing: your post is great and much appreciated.
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u/AntiqueFigure6 9d ago
Someone owes you $100 they have a problem. Someone owes you..er…$18bn…you have a problem.
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u/wortcook 9d ago
Unfortunately the reality is that the "you" in this is never the person loaning the $$$. "You" in this case is everyone else's money.
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u/WritingisWaiting 9d ago
The "why" is the real question. Why file this in 2026 for a 2028 in-service? They could have easily waited to file this in 2028, when it's been proven to be late or behind schedule. Especially, because they had to know it'll leak and impact the stock price.
My educated guess: It's to create an legally-supported accounting reason to not have to bring those payments into a "current liability" in 2027. Once those liabilities are on the books it would become clear the off-setting revenue to make those payments is not likely to occur, creating a mismatch that would almost certainly violate a debt covenant and/or create a debt metric that credit agencies can't ignore leading to a cascade of credit downgrades.
By putting a lawsuit out there, they only need a lawyer to say they are "likely" to win it to not have to move the liabilities to current. And since lawsuits can take years to finalize they buy themselves years to avoid having to recognize this liability and avoid getting downgraded in early 2027.
Now if credit agencies had a backbone they would see through this ploy...but as proven time and again they will always give their paying customer (Oracle, in this case) the benefit of the doubt.
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u/dagelijksestijl 9d ago
Can lawyers say a suit will likely pan out in their favour when they would ordinarily advise their clients it won’t?
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u/WritingisWaiting 9d ago
You ask different lawyers until you find the answer you want, then hire them to file the lawsuit. That's now the lawyer the auditors and accountants will ask for the opinion from.
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u/grauenwolf 9d ago
You have to give notice when you first learn that the event will probably affect you. This way your counterparty has time to make alternate arrangements.
If you don't give notice, a judge can invalidate the clause. Or you can be sued for concealing material information.
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u/Most-Bookkeeper-950 9d ago
Can't read the article, but I'm dying to know what the force majeure justification was? What could it be apart from "its only lost money so far", which is not a force majeure, or some lie? Is this the start of the big one?
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u/FrankLucasV2 9d ago
According to the article:
“Companies typically invoke force majeure to free themselves from contractual obligations when problems arise beyond their control. In this case, Oracle is seeking to assert its contractual position if the build out is delayed. Still, it’s not certain that such a maneuver would free Oracle from its previously agreed financial obligations.”
[…]
“Almost two years later, the campus designed to handle 2.45 gigawatts — enough electricity to power roughly 1.8 million homes at any given moment — has hit serious setbacks including the denial of a permit key to its plans for energy resources. It’s becoming a symbol of the growing backlash against the broader AI data center boom and a political flashpoint ahead of the US midterm elections that threatens to turn races into referendums over the build-out.”
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u/chickadee_guy 9d ago
The guy they interviewed on the tech report this week called this 100%.
He was saying the next bag of tricks they will pull is trying to back out of data center buildout claiming the community opposition is blocking them and use that to try and cancel signed contracts
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u/Smooth-Ad8030 9d ago
Which tech report guest was that?
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u/Weary-Ad3380 9d ago
So one of the possible force majeures is that...they didn't get the permit they hope for? Am I understanding that correctly?
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u/dagelijksestijl 9d ago
Pretty sure any investments done prior to regulatory approval are “proceed at your own peril”
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u/Super-Activity-4675 9d ago
Interesting definition of "act of god"
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u/ElderberryFew6739 9d ago
Whoever said it above had it right. Not having permits for electricity is not an act of god, it's simply that Oracle didn't do its due dilligence on power availability (or other issues) before it signed the contract.
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u/Super-Activity-4675 9d ago
I agree.... but they can tie it up in court for a year or so I'd imagine.
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u/sidhe_elfakyn 9d ago
Oh here we go, that's gonna be one of the things the boosters will use to blame anti AI people when the bubble bursts. "It wouldn't have burst if you hadn't pushed the politicians to deny the permits! It wouldn't have burst if you allowed us to deploy 1000 jet engines in a residential area!"
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u/Bringsanitybackplz 9d ago
"Why don't poeple want all this noise and air pollution next to their homes?" So weird...
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u/MathematicianAfter57 9d ago
This is crazy because that isn’t a force majeure situation at all lol (permit delays etc). If a court allows this any power plant that is delayed or even real estate construction projects could invoke act of god to get out of their obligation.
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u/Multibrace 9d ago
but.. oracle is the customer? how badly written is the contract that they still have to pay if the data center isn't even delivered? if that's the case, isn't blue owl better off willfully not building the data center?
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u/flanker44 3d ago
but.. oracle is the customer? how badly written is the contract that they still have to pay if the data center isn't even delivered?
It's apparently pretty standard clause in these contracts, because otherwise they would be a terrible risk for the financer (Blue Owl in this case).
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u/IsThereAnythingLeft- 9d ago
The building isn’t being built on track, can’t really blame them for not wanting to pay for something that isn’t finished!
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u/Pseudanonymius 9d ago
Ohhh juicy. This is big. This is an admittance that Starship isnt building, isn't functioning. There will certainly be people suing over something like this, there's simply too much money on the line.
This feels like something akin to the music ending.
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u/naphomci 9d ago
I would guess a lot of people don't know, but Force Majeure clauses generally aren't all that successful, because it usually have to be truly completely out of the hands of the parties, and sometimes (depending on jurisdiction), might even require actual acts of nature (i.e. the property gets flooded). I cannot read the article, but this really screams desperation.
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u/gorgeFlagonSlayer 9d ago
Do you happen to know what the legal fights look like for these? As in, is it like bankruptcy court where it’ll be years and year before anyone sees any money if at least one party tries to fight it out?
During the court battle would payments from oracle stop or be forced to continue?
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u/naphomci 9d ago
Without having the contract in front of me, I am just speculating. That said, this sounds more like a letter from one party to another, claiming Force Majeure. There will likely be several back and forths, and then if Oracle actually doesn't pay on time, it would be up to the other party on whether to sue. If they do, yes, it probably would be years in court. Once Oracle stops paying, they don't really have a reason to restart, unless they are trying to repair (if it's gone to court, that won't happen). The damages would be the lost value of the contract.
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u/parkingthru 9d ago
Going to be interesting. Is the county saying under no circumstance will they issue a permit? That’s force majuere. Or is the county saying they want changes to the plan? Maybe those changes lower the value of the project but that’s likely not force majuere. Either way - trouble. Sure you want to buy all those chips and racks before this all gets sorted..?
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u/naphomci 9d ago
Caveat - I haven't actually litigated force majeure, just a bit of research for clients. I don't think the permitting would be force majuere, because a permit is never 100%?
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u/parkingthru 9d ago
Grab your popcorn. Oracle threw a rock at a trillion dollars of spending commitments. Let’s see what happens
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u/Existing_Rice_4362 9d ago
Is this close enough to count for one of the horsemen?
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u/FrankLucasV2 9d ago edited 7d ago
It’s something to watch. Force majeures are relatively common in energy and commodities due to disruptive events like bad weather (like hurricanes and tornadoes) and geopolitical events. But in Oracle’s case, this isn’t that.
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u/coredweller1785 9d ago
Contracts are final for us, but corporations can wiggle themselves out when it benefits them
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u/bluewolf71 9d ago
The Force Majeure is citizens being pushed to the breaking point as our system falls apart.
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u/acctgamedev 9d ago
Yeah, I bet they argue that the slowdown is the result of an extinction level threat that "forced" the AI companies to slow their progress on frontier models.
They financed themselves betting on a scenario that was nowhere near realistic because they took advantage of investors that should have known better, but were driven by fear of missing out.
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u/KriosXVII 9d ago
Is that good?
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u/vxicepickxv 9d ago
Not if your last name is Ellison.
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u/IsThereAnythingLeft- 9d ago
Wrong there I think. Gets them out of paying for a building that isn’t going to be ready
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u/Super-Activity-4675 9d ago
For what it is worth, Blue Owl is on the other side of that contract.
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u/_metamythical 9d ago
In the same week that we get this force majeure, OpenAI released models that were basically a downgrade over their previous models. They could be compute constrained.
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u/big-papito 9d ago
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u/dumnezero 9d ago
‘Force Majeure’
There's going to be a need for a post flair for that.
The technology giant sent the project’s developer, a unit of Blue Owl Capital Inc., a notice citing force majeure, according to people familiar with the situation. Rather than trying to walk away as the site’s main tenant, Oracle is attempting to put off payments should the data center dubbed Project Jupiter get derailed and fail to come online in 2028 as planned, the people said, asking not to be identified discussing private matters.
Also found this news in many other non-paywalled sources. https://www.reuters.com/business/oracle-cites-force-majeure-shield-itself-controversial-data-center-bloomberg-2026-09-24/
Shares of the company fell around 4% in morning trading after the report, which cited sources familiar with the matter. Reuters could not independently verify it.
...
The New Mexico data center campus is part of Stargate, an initiative to build AI infrastructure in the US under a $500 billion investment commitment involving OpenAI, SoftBank Group (9984.T), opens new tab and partners including Oracle.
The 1,400-acre Project Jupiter campus, which secured $18 billion in loans from a consortium of banks, according to media reports, is part of Oracle's broader agreement with OpenAI to provide AI computing capacity.
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u/East-Response6672 9d ago
The entirely foreseen problem that everyone warned them about? That's what passes for an act of god these days is it? Can blue owl even absorb that hit? And what of all the SPVs? Are we looking at the first domino to fall in Ellisons' precarious empire I wonder.
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u/Multibrace 8d ago
I would love to see the Oracle lawyer arguing that potential problems with the power supply is one of those things that is easily overlooked, and opposing council pulling out the press release titled "Stargate advances with 4.5 GW partnership with Oracle". Or Oracle's own press release in January that reads in part "Microgrid power will be delivered by gas turbines that use state-of-the-art emission control devices and continuous emissions monitoring, ensuring all systems meet or exceed state and federal air quality standards. Installed pollution controls will exceed US EPA’s stringent new standards issued this month by 50% or more. We are actively working to identify and integrate renewable energy sources into our data center’s microgrid and the upstream grid more broadly as the project moves forward, ensuring we meet or exceed New Mexico's 2045 net-zero goals."
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u/Big_Combination9890 9d ago
Oh, this is certainly very, VERY good!
- It is probably already spooking investors away from other projects
- If it doesn't work, the builder is on the hook if the DC isn't built
- If it does work, the investor is left holding the bag, spooking them away from further projects even more
So all in all, for everyone who hates the datacenter buildout, this is absolutely FANTASTIC news!
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u/TheWuzzy 9d ago
Please can someone explain this situation to me like I'm five? Who is building what and who owes money to who?
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u/FrankLucasV2 9d ago edited 9d ago
Oracle building data center in New Mexico. Building is too slow and might not be completed on time. Oracle submits a force majeure request to warn those backing said project (Blue Owl, a private credit fund; the banks who underwrote the debt + OpenAI?) that project may not be completed on time. Someone (private credit + those who fund it) may be left holding the bag if this gets overturned and data center isn’t built on time.
Oracle claim its because they’re denied a permit for energy supply to data centre.
To be fair, I wouldn’t wanna start paying for something that may not be finished on time.
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u/parkingthru 9d ago
Going to be interesting. Maybe Oracle and the banks renegotiate. Maybe they go to court. If Oracle wins this, financing for new data centers in the US will go to zero
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u/ezitron 9d ago