Events surrounding Oracle this week have some investors wondering whether the “ring trade” popular in the artificial intelligence craze has begun to unravel. Due to force majeure, Oracle was unable to build a data center in New Mexico on time and is currently requesting deferral of lease and loan payments.
New Mexico data center reportedly dubbed ‘Project Jupiter’ financial timeswas supposed to be operational by the end of 2028, but now faces protests from local residents over the construction of the necessary energy infrastructure. Due to these reasons, the implementation of the project was delayed and Oracle was unable to become operational within the initially agreed time frame, so the company requested a deferment of payments to its partners and contractors – the Blue Owl Capital (Stack Infrastructure) unit involved in the construction of the core facilities and the parent investment company Blue Owl Capital. In addition, even if the facility is not built on time, Oracle will have to repay an $18 billion loan plus interest.
Image source: Oracle
The terms of the contract mean that Oracle has a financial obligation to the partners for rent amounts deferred for three years, inclusive, regardless of when construction is completed. The first phase of Project Jupiter is scheduled to begin work in the first half of 2027, so even the slightest delay would seriously increase Oracle’s risks. The company has notified its project partners of the occurrence of force majeure, but when commenting to the media, it prefers to comment on the situation only in the spirit of guaranteeing compliance with the original timeline: “The Jupiter project is proceeding as planned. We remain committed to the New Mexico project and are confident in our future trajectory.”.
If the power supply to the facility under construction is not established on time, Oracle will have to pay periodic payments despite the fact that the data center will not be able to operate. Project Jupiter is part of an initiative OpenAI support Computing power totals $300 billion. Formally, Oracle could transfer liability for lease payments to Blue Owl Capital’s construction arm, but it would have to repay the loan in full, and Blue Owl’s financial arm would also be able to demand periodic payments of the principal portion of the debt.
Lawyers now wonder whether it is appropriate to use force majeure to renegotiate the mutual obligations of the parties to a transaction. To finance the construction of the data center, a consortium of more than 20 banks provided an $18 billion credit line late last year. It was initially expected that this financial burden would be redistributed among more institutional investors, but due to growing concerns among the latter, the plan did not work. The debt loads on both sides of the deal are higher than they initially expected. The deal’s debt value on the interbank market was no more than 90 cents on the dollar, according to the Financial Times. The initial interest rate on the four-year loan is 2.5 percentage points above the benchmark overnight borrowing rate on Treasuries. The loan term can be extended for another two years.
Blue Owl Capital has invested $3 billion in the project and will earn annual interest income of 9% during the construction phase and approximately 11% once the facility is operational. If Oracle manages to convince the partner that a force majeure situation has occurred, it can extend the payment period after the discount. Additional payments will begin later. In any case, Oracle faces situations where costs increase as project deadlines increase and revenue starts to come in later than planned. This makes it necessary to reconsider agreements with partners on the grounds of force majeure.
Construction delays at the New Mexico data center were also due to technical difficulties, as pipes needed to be laid on site for air supply to the fuel cell power plants of the future. The data center’s projected energy consumption must exceed 2.4 gigawatts, so creating adequate energy infrastructure will also take time. Against the backdrop of such rumors, Oracle shares fell nearly 3.5% in U.S. trading.
Source: