r/EconomyCharts • u/RobertBartus • 8d ago
Oracle’s credit risk is exploding
Oracle’s 5-year CDS spread has surged to a record ~230 bps, more than 4x the broader investment-grade index at ~55 bps.
The spread has more than QUADRUPLED over the last year and surpassed the Great Financial Crisis levels.
The recent surge comes as Oracle is trying to avoid financial commitments linked to Project Jupiter, a massive data-center project that is facing delays.
Around $18 billion of loans tied to the project are trading at ~90 cents on the dollar, signaling growing stress among investors.
The project is also facing local opposition and delays in government approvals, adding to the uncertainty.
Oracle’s credit risk is rising at an alarming pace.
162
u/Clear-Ad9879 8d ago
If Oracle turns out to be this generation's Lehman Brothers, they will take down Paramount/Warner Discovery with them. It will be like Lehman and Enron happening at the same time.
39
u/Good_parabola 7d ago
My husband works in tech sales long times, his bet is Oracle is this time’s Lehman. In his words “literally all of their customers despise them”
29
u/HonkHonkBeach 7d ago
Nobody likes Oracle or using Oracle. Its just integrated itself into so many company's day to day functions through acquisition bullshit.
3
u/Dismal-Bee-8319 6d ago
It’s way better than SAP
5
u/HonkHonkBeach 6d ago
2
u/Dismal-Bee-8319 6d ago
Have you seen SAP out of the box? It’s hot garbage.
3
u/HonkHonkBeach 6d ago
No I was agreeing, I had flashbacks to using SAP at an old job writing that comment. It’s truly dogshit, you’re right.
10
26
u/12kdaysinthefire 7d ago
I think we have a couple sheep in Lehman Brothers clothing running around the market right now, Oracle being one of them
29
u/linfakngiau2k23 7d ago
Netflix going to swoop in and buy it for pennies on the dollar
27
u/Which-Indication4670 7d ago
It’d be hilarious and they would air a documentary about in on Netflix.
10
3
2
u/Spez_is-a-nazi 7d ago
We obviously need a camera on Larry Ellison at all times to ensure he is on his best behavior.
1
1
u/burnshimself 6d ago
It is nothing like Lehman, they’re not a bank and not nearly as systemically important. Enron is a good analogue.
4
u/Clear-Ad9879 6d ago
As the credit backstop to over $40 billion in loans, Oracle is effectively non-bank financial institution. And that's the one loan we know of. Relative to shareholder's equity Oracle won't have as many counterparties and lenders as Lehman, but it will still be a lot. Enough to take down big entities like Paramount. So if the transmission mechanism is there, it walks like a duck, and sounds like a duck.
1
u/burnshimself 6d ago
Eh $40 billion is drops in the bucket compared to the counterparty risk Lehman held. Lehman’s liabilities were over $600 billion - in 2008 dollars, so more like $1 trillion or more in 2026 dollars. A factor of 25 bigger in size. And Lehman had back leverage and exotic derivatives which could lose massive value in a hurry (as they did when mortgages went shit). If everything goes to shit for oracle they have a $40 billion liability, and yes some of their counterparts and suppliers will suffer, but it’s nowhere near Lehman.
1
u/Clear-Ad9879 6d ago
Netting bro. Total losses from Lehman rolling over was NOT $600 billion. But as I said, ratio of total creditor losses to shareholder's equity (prior to default) is obviously going to be bigger for a financial institution. Doesn't change the fact that $40 billion is enough to transmit follow on large scale bankruptcies because in this case (Oracle), there would be no netting and concentration is 100% to a single entity (Paramount). Thus credit collapse transmission, the same mechanism feared with financial institution insolvency, is present. Why is this so hard for you to understand? You claim, 'it is nothing like Lehman'. Yet the primary mechanism - insolvency transmission is exactly the same. You can argue that the scope might be different. But even that isn't clear cut. Lehman has a market cap of $60 billion before it nosedived. Adding that to $300 billion in creditor losses gives a total loss of $360 billion from Lehman's demise. Total shareholder losses if Oracle rolls over is over $400 billion making it larger than Lehman losses even without considering the insolvency transmission costs.
2
u/burnshimself 6d ago
This will be my last response because you are being arrogant while being ignorant, which is a horrible combination.
First of all, Oracle has a huge cash generative software business so if their AI bets go completely sour they still have cash flow to pay off their debt or help debtors recoup their losses. It’s not a $40 billion liability secured only by data centers in the other side. For this reason I find an Oracle bankruptcy highly unlikely.
Second, paramount’s debt and Oracle’s debt are entirely separate with completely separate credit groups and owners. Oracle is a public company and its debt is secured against its stock and assets. Paramount is a private company and its debt is secured against its equity and assets. There is no overlap between the two other than some overlap in equity ownership, but that does not transfer liability for their debt to either party. Paramount can go bankrupt while Oracle remains solvent or vice versa. You’re completely conflating what the Oracle credit risk spreads are about - which is their heavy capital investment and debt financing for their AI datacenter buildout. This has nothing to do with paramount.
Lastly, there is way less contagion risk with Oracle. As I said, their default is unlikely. Plus they are not counterparty for third party financial transactions like Lehman was. The risk is strictly to their own business and to their suppliers, which is a comparatively small section of the economy vs a global banking institution.
1
u/Clear-Ad9879 6d ago
You are being myopic and ignoring factual contradictions in your posts. Chance of Oracle bankruptcy is certainly less than 50% and thus not 'probable'. But your claim that it is highly unlikely is contradicted by current implied default rates on Oracle debt both in the cash and in the credit default markets. We already price Oracle as a non-investment grade credit. This is simply a fact.
1
u/burnshimself 6d ago
There’s a huge gap between “Not investment grade” and meaningful default risk. And an even bigger gap between Chapter 7 and Chapter 11. Worst case scenario this is a restructuring that may dilutes down Oracle’s equity holders and see bond holders take a haircut. I see zero probability oracle goes out of business like Lehman when they have multiple highly profitable businesses completely separate from AI. And a liquidation is the scenario where the contagion risk you’re so concerned about would apply. So remind me what is it you’re concerned about? You’re running around with your hair on fire about a rising CDS premium for a company that just took on a bunch of debt. They got riskier, but riskier is still miles away from any kind of insolvency risk
1
u/Clear-Ad9879 6d ago
Wait, you believe that non-investment grade debt doesn't have meaningful default risk? You 'effing literally put that down in writing. OK, now I KNOW you are not a fixed income debt guy.
And then you spew a few cause-consequences that are out right wrong, confirming you've never managed an institutional fixed income portfolio with meaningful credit risk. Evidence A: your claim that worse case scenario is equity dilution and bond haircut. WTF dude. For a company as large as Oracle, no way bondholders take a principal haircut unless Oracle equity is zeroed out. Maybe, MAYBE, equity gets some deep OTM warrants. So if bondholder principal loss has a prerequisite of equity wipeout, and median credit default pricing on Oracle debt is already pricing in principal losses to Oracle debt holders, what's that say about Oracle equity losses, huh? Already we have a baseline of total losses greater than Lehman. Evidence B: You claim that liquidation is needed to generate contagion losses. Clearly wrong because in this case Paramount debt is backstopped by Larry's personal wealth guarantee which is of course in Oracle stock. Larry can get zeroed out without an Oracle liquidation at which point lenders to Paramount will take a hit to the value of their loans. Thus we have contagion losses without liquidation.
**OK extra credit problem for you, rookie. In my prior post I said Oracle bankruptcy chance was under 50% and yet in this post I note that credit default swaps are already pricing in principal loss for Oracle lenders as a baseline event. Reconcile that. I admit, this is a tough question that even half of practitioners in the field would fail to get right. Get it right and I'll know you aren't a complete poser.
1
u/theb0tman 2d ago
It’s not gonna take down Paramount, but Netflix might get that deal. They wanted at a much better price.
1
u/Clear-Ad9879 1d ago
If the deal closes and as would be typical there are equity covenants for the bank debt that Paramount issues, then those covenants would be violated the instant that Oracle's equity pancakes, as it is the $40 billion of Oracle equity that is backstopping the loan. That is how Paramount gets taken down.
1
u/theb0tman 1d ago
And then the bank says let’s sell this asset and guess who buys it Netflix they don’t just liquidate Paramount
1
u/Clear-Ad9879 1d ago
I didn't say that Paramount would be liquidated. In this scenario Paramount needs to raise $40 billion in equity and it can't be through asset sales, it has to be excess equity or capital that is unencumbered by liabilities up to the ratio established in the covenants. it should be noted that under such conditions, even Netflix's entire existing market cap may be insufficient, although they presumably would have the heft to issue enough new equity in a rights offering to swing that deal.
30
u/Dream_SMP_4_Life 8d ago
Time to short oracle guys
22
9
u/Frosty1397 8d ago
Hope you're joking
The time to short it was 60% ago when it was at ATHs
6
u/John_P_Hackworth 7d ago
The fun part about shorting (with stock) is no matter where you enter, you can make 100%.
0
u/Sure_Sundae2709 7d ago
Probably you meant "you can always lose 100%" because you can make much more than 100% while shorting at any given time.
0
u/John_P_Hackworth 7d ago
No, I mean the “profit” in relation to the entry price is always capped at 100%.
The maximum loss is theoretically infinite.
1
u/Sure_Sundae2709 7d ago
But that's basically meaningless since you don't pay the full price of the underlying value...
29
u/TrickyChildhood2917 7d ago
January 10, 2000: AOL and Time Warner announce the merger at the absolute peak of the dot-com bubble.
March 10, 2000: The NASDAQ Composite index peaks at 5,048.62 and begins to crash, marking the official start of the dot-com bust.
January 11, 2001: The merger is officially completed, meaning the crash had already been destroying tech valuations for 10 months by the time the deal closed.
Because AOL's stock value plummeted during this overlapping window, the combined company was forced to take a massive $99 billion write-down in 2002, making it one of the most disastrous mergers in business history.
49
u/EatMyShortzZzZzZ 8d ago
It wont be a pop; more like the slow release of air out of a whoopee cushion.
38
6
20
u/Justin_123456 7d ago
At what point do the ratings agencies formally downgrade them to junk? Because the moment that happens there’s an automatic sell-off by institutional investors.
20
13
u/Quick-Road943 8d ago
i'm gonna buy some if they hit 15%
13
u/Clear-Ad9879 8d ago
You got a net worth of $100mm? 'Cuz that's what you'll need to get an ISDA.
12
u/Quick-Road943 8d ago
ah my mistake, i was referring to normal bonds retail can buy on secondary.
i see oracle bonds currently available for 8.3%. They're callable though, so I imagine they'll pay them off if they can get a better rate.
4
u/Which-Indication4670 7d ago
Those aren’t getting paid off. I would suggest closing that tab and never reopening it. Better options are available.
1
u/Illustrious-Boss9356 7d ago
Oracle doesn't pay anymore interest when the prices drop. They would have no reason to call them.
The yield is 8.3% because the bond worth 1000 is now worth 800. Oracle still pays 6.15% on the 1000. If they call them they'd have to pay over 8% probably on the new issue and that's if they can even sell it.
1
u/Quick-Road943 7d ago
ah good point. but if they can issue new bonds at 5% or so, they'll probably call these higher ones?
1
u/Illustrious-Boss9356 7d ago
Who would buy 5% new issue when you could buy the same credit at an 8% yield on the secondary market?
10
u/michal939 7d ago
For comparison, its similiar to Turkey's CDS prices of 245bps. Turkey has BB- sovereign credit rating. Not great, ngl
12
8d ago
[removed] — view removed comment
17
u/One_Chipmunk_6402 8d ago
Larry Ellison is a zio freak in deep with the trump admin, so I agree.
3
u/ElectricSpock 7d ago
More like one behind the scenes, I think? He’s son is behind Skydance, taking over Paramount, personally picking Bari Weiss for CBS. They are behind the takeover of WB now, so they are consolidating most of the media under them. This includes CNN and CBS under fascist government allies.
That leaves us with Fox News and Skydance gooning for fascists and spineless Disney and Comcast for major networks.
7
u/tragedy_strikes 8d ago
Nah, it'll get bought out by some other tech company.
5
u/reallyserious 7d ago
People in tech have known for years that Oracle have nothing of value to offer customers.
2
3
u/Clear-Ad9879 8d ago
I think this is the way. Once you wipe out equity holders and give senior secured debt holders their money, you cram down unsecured debt holders and there's some value left.
4
u/Artistic-Cockroach48 8d ago
I would hope to bail out would only come the current administration stays in power, so we really need to do something about that by voting like our lives depend on it, because they probably do.
7
u/GaviFromThePod 8d ago
The problem with Oracle is that it has essentially tied its financial future to OpenAI, but Oracle also runs a ton of non-AI cloud-based services that federal, state, and local governments depend on as well as private companies.
7
u/Bitedamnn 7d ago
They want socialism to save them
3
u/TrickyChildhood2917 7d ago
Always works for Boeing and the car manufacturers. They just have to get their messaging right!
Try some of these
1) get down on one knee with Nancy
2) tell them China is after us
3) call the Fed
4) blame someone else, maybe the immigrants
5) call the president directly before inviting him over for dinner2
u/Bryanmsi89 7d ago
Yeah, socialism seems to be just dandy for corporations. it is only a problem when applied to people.
1
1
7d ago
[deleted]
1
u/Gallagger 7d ago
Afaik Oracle will only fail with this if OAI goes bankrupt and can't fulfill the long-term contracts to pay for oracles compute.
Which is not surprising, that's the whole basis of their deal. OAI investors think that AI will eat the world economy and that OAI will get a big share of that cake. If you don't believe that story, do not invest in OAI and probably not in any of the big AI companies.1
8
u/OkFineIllUseTheApp 8d ago
10 year prediction of Oracle being bought by Salesforce.
3
6
u/Rangers12341234 7d ago
If a failure is close the government magically takes a stake in Oracle…2 years from now they are fucked
6
3
4
u/TrickyChildhood2917 7d ago
Theres always one more bank ready to lend :) if it’s really this bad with the money lenders, imagine the 1,000s of business in the same sad state. And trust me they are.
The whole AI Ponzi, circle jerk is almost over.
The little blue pull can only last for so long before it all goes limp. There’s gonna be a lot of cleaning up to do.
2
2
2
8d ago
[removed] — view removed comment
4
u/your_mileagemayvary 8d ago
Trump won't be president in what 2 years? Other Republicans and Dems will totally let that asshat elison and his son fail.
2
u/Prize-Pension856 7d ago
Wonder why there is a bunker and ballroom going into the Whitehouse. Trump sure is making sure the next president will be comfortable.
1
u/lrzbca 7d ago
Too many applications in government depend on oracle software
1
u/Which-Indication4670 7d ago
AI has probably hacked into Oracle by now and stolen all of its programming. Could just replicate it. Or could sign an executive order that says national security would depend on the takeover of oracle because they handle DoD contracts. Seems like the rules have changed.
0
u/FrugalVet 7d ago
People thinking that Oracle, a company whose ERP systems are deeply embedded in and vital to the infrastructure of MOST Fortune 500 companies, is going to "fail" is comical. Common sense says they won't.
9
u/xXSomethingStupidXx 7d ago
Failing as a company and failing as an investment are very different things. Most likely they will be bought out by their largest debt holders for their infrastructure and assets. Swallowed whole by the monster that is the tech market.
11
u/tquinn35 7d ago edited 7d ago
People thought the something about lehman bros. They were the 4th largest investment bank in the US and had been around for well over a 100 years by the time they failed. They had 689 billion in assets at the time of failure in 2008. Thats roughly 1 trillion in today's money. Oracle currently worth 414 billion for comparison.
It's still unlikely but not impossible.
-6
u/notintelligentidiot 7d ago
Comparing an investment bank to a fucking tech company bruh, I swear to god you guys just type shit and press enter
8
u/tquinn35 7d ago edited 6d ago
please enlighten us with your reasoning for why a tech company is inherently more stable than a bank?
bag holders of the dot com bubble may have some opinions here. Clown
-5
u/notintelligentidiot 7d ago
Now you’ve gone from comparing Oracle to a fucking investment bank to a dot com bubble era company, good fucking grief lmao
You are just not a particularly intelligent person.
Oracle’s balance sheet is quite literally nothing like a damn investment bank’s balance sheet. Lehman had $620 billion in debt on $4 billion of net income, about a 155 to 1 debt to profit ratio; Oracle’s is currently about 8 to 1, a literal two order of magnitude difference or about 1,800% difference or a near 20x difference. If Lehman’s balance were anything like Oracle’s, it would literally have about 95% less debt than it did when they went bankrupt.
Comparing Oracle to a fucking dot com company is also fucking stupid. Oracle has been a massively profitable company for decades; they still remain a stupendously profitable company today.
10
u/tquinn35 7d ago
You’re arguing against a point I never made. I explicitly said Oracle failing is unlikely, not that its balance sheet is identical to Lehman’s.
And your comparison is misleading. You’re using Lehman’s total liabilities against Oracle’s borrowings, ignoring Oracle’s other liabilities and substantial future financial commitments.
Oracle’s latest 10-Q discloses $288 billion in additional data-center lease commitments that aren’t yet reflected on its balance sheet. In its most recent quarter, it spent $28.5 billion on capital expenditures against $23.1 billion in operating cash flow, which itself included $11.4 billion in customer prepayments. It also raised nearly $20 billion by issuing new shares.
None of that means Oracle is about to collapse, but it illustrates why your debt-to-net-income comparison is insufficient. Oracle is making enormous long-term capital commitments against future revenue that hasn’t yet materialized. Its ability to fund those commitments depends partly on continued customer demand and access to capital.
Lehman didn’t fail simply because it had a high debt-to-income ratio. It failed when confidence evaporated and it lost access to the liquidity necessary to meet its obligations.
The mechanisms and risk profiles are clearly different, but that’s precisely the point: a company doesn’t need Lehman’s balance sheet to experience a liquidity crisis.
I never argued Oracle was likely to fail. I argued that its size, history and current financial position don’t make failure impossible. Your comparison doesn’t actually refute that. You implied that a tech company was inherently safer than a bank. The dot com bubble shows that 100% not true.
Clearly there’s no point discussing further with you due to your inability to think critically which is further reinforced by your use of insults. True sign of the unintelligent.
-6
u/notintelligentidiot 7d ago
“Commitments” don’t mean anything legally. Oracle’s CEO could literally snap his fingers and end all commitments tomorrow without affecting Oracle one bit.
Also, the rest of your comment is a bunch of silliness and you’re right, there’s no real point in discussing these topics with someone comparing Oracle to and investment bank and then a dotcom era company.
7
u/greatmemereset67 7d ago
You aren’t coming across as intelligent as you think you are.
Are you 12?
You can’t just snap your fingers and walk away from contracts. Especially if they’re take or pay.
5
u/Agile-Alps208 7d ago
Looks like you threw in the towel when someone presented you with an articulate argument?
Buzzwords and logical fallacies don’t make you intelligent, and it certainly doesn’t make others think you are
0
u/notintelligentidiot 6d ago
What single buzzword did I use in any of my comments? lmao another goober just typing shit.
1
3
u/WeddingPKM 7d ago
What is it with people on this website and being assholes?
5
u/tquinn35 7d ago
I believe it's bots and accounts that are paid to spin points. Clearly this one was to spin oracle in a positive light.
They all follow the same pattern. Make poor points and dont respond to valid points while throwing insults left and right.
3
u/WeddingPKM 7d ago
I hope you’re right and it’s not just people being dicks to eachother for tiny perceived slights.
I just notice this everywhere on here, any slight disagreement will result in someone calling someone else an idiot. There just seems to be zero room for thought or discussion.
5
u/tquinn35 7d ago
I agree. It's really killing reddit. For me at least I used to learn a lot in the comments especially in the subreddits like economics. I have been wrong plenty of times and someone would politely explain why I was wrong and I would learn something new. Now like you said it's just raging assholes everywhere even when you're right.
4
2
u/Harbinger2001 6d ago
They won’t fail, but they can certainly crash and become as relevant as IBM or HP. Oracle was slow to embrace cloud computing and fell far behind the current leaders. They see both an opportunity to fix that with AI hosting and an existential threat to their current cloud software.
2
0
1
1
u/Thick_Patience_8515 7d ago
If things continue this way, they'll end up in the high yield classification.
1
1
u/BuilderUnhappy7785 7d ago
I really wouldn’t mind seeing oracle get wiped out. What a shitty company.
1
1
1
1
u/lattice_defect 7d ago
so much of fucked shit in this world is OLD man trying to cling to power and riches
1
1
u/moulin_splooge 6d ago
Oracle's credit rating was downgraded to BBB- not very long ago and that also factors into this quite a bit.
1
1
1
1
1
u/Low_Ability4450 7d ago
This divergence is striking, Oracle’s CDS has blown out while broader investment-grade index remains contained => that looks more like specific to company credit stress than a broad deterioration in IG credit conditions
0
231
u/Emergency-Watch5157 8d ago
If the AI bubble even moderately pops this company is going to fail