Oracle takes bottom-up approach to funding 2026 capex
Amid an unprecedented AI-focused borrowing binge, Oracle became the first of the hyperscalers to blink on the public equity side, raising US$5bn from the sale of a mandatory convertible preferred, while filing to sell another US$20bn of stock on the open market through an at-the-market programme.
The company's broader financing package, including Monday's US$25bn bond offering, funds the US$50bn of capex planned for this year, removing an overhang on the stock after the company had been noncommittal about how it would pay for its growing expenditures on AI data centre construction.
Citigroup, as lead-left bookrunner, priced the US$5bn mandatory convertible preferred security at a 6.5% dividend and 25% conversion premium, towards the aggressive end of the 6.25%–7.25% and fixed 25% price talk marketed on Monday.
After falling 2.8% over the Monday marketing, Oracle shares fell another 3.4% and closed the week at US$136.48, 14.7% below the US$160.06 Monday close that was used to price the mandatory.
The mandatory raise is among the largest ever in the convert market, trailing the US$5.75bn mandatory Boeing sold in late 2024 as part of a larger equity raise to pay down debt. Combined with the US$20bn ATM programme and US$25bn of new debt, the financing package is a single shot that removes the funding overhang.
Oracle certainly could have raised more from the mandatory, given the favourable pricing and investor demand, bankers involved in the offering told IFR. Underscoring the specific funding goal, the security was not structured with a greenshoe option, which typically is sized at 15% of the base offering size and therefore would have allowed a US$5.75bn raise.
The mandatory appealed to a broad swathe of equity, equity-income, long-only and CB arb and crossover credit investors, the bankers said.
Bank of America, Deutsche Bank, Goldman Sachs, HSBC and JP Morgan were additional bookrunners on the mandatory. A similar group of banks (excluding HSBC but including Citigroup) are joint placement agents on the US$20bn ATM, among the largest open-market sales programmes behind only bitcoin hoarder Strategy's US$21bn in late 2024.
Oracle’s goal was to maintain its investment-grade credit rating. Moody’s and S&P both affirmed their Baa2 and BBB ratings, while maintaining a negative outlook. Fitch affirmed its BBB rating and stable outlook.
Oracle is expected to blow through US$23.6bn of free cashflow in its fiscal year ending May 31, another US$21.4bn in fiscal 2027, and US$17.9bn in fiscal 2028, as capex grows from US$50bn to US$62bn and then to US$75bn, according to LSEG data.
For the mandatory piece specifically, the strategy appeared to be to fix size, fix premium and drive investor demand on dividend.
Combined with the US$20bn ATM, which was eligible to be activated as soon as the mandatory settles on Thursday, the mandatory helped drive improved terms on the larger US$25bn bond package.