The cost of protecting Oracle Corp.'s debt against default reached a fresh multi-year high on Monday while its existing bonds sold off, as doubts grew over whether the company's massive investments in artificial intelligence will pay off.
Five-year credit default swaps on the company's debt, a gauge of perceived credit risk, rose to about 2.03 percentage points annually early Monday, according to ICE Data Services. That marked the highest level on record for data going back to the end of 2008, surpassing the previous peak of 198.23 basis points reached on Friday.
Oracle Debt Risk Hits Record High
Photo Credit: (Photo: Bloomberg)
Meanwhile, Oracle's bonds weakened across the curve on Monday. The spread on Oracle's 6.7% bonds maturing in 2056, one of its most actively traded bonds, widened by about 8 basis points to 263 basis points, according to Trace data. Its 5.7% notes due in 2036 widened by around 9 basis points to 205 basis points.
Oracle did not immediately respond to a request for comment.
An artificial intelligence model from a Chinese startup has renewed fears over the impact of massive capex spending on tech earnings, which kick off Wednesday. Oracle reports earnings on September 9.
Oracle, the biggest issuer in Bloomberg's US high-grade corporate bond index outside of the financial sector, has become the credit market's barometer for AI risk. S&P Global Ratings downgraded the company earlier this month to one notch above junk, citing the company's growing spending on artificial intelligence.
Investor focus should shift to any changes by Moody's Ratings, which has a Baa2 rating on the firm with a negative outlook, as Oracle continues its spending spree, according to Morgan Stanley credit analyst Lindsay Tyler.
"Fallen-angel risk is not immediate, especially with equity and prepayment levers, but remains medium-term dependent on execution and monetisation," Tyler wrote in a note dated July 9.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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