Oracle has started marketing a US$5bn mandatory convertible preferred that is part of a US$50bn debt and equity financing package aimed preserving the Texas-based hyperscaler's investment-grade credit rating amid massive AI spending.
Citigroup is leading the equity funding, including a US$20bn at-the-market program, and Goldman Sachs the US$25bn straight-debt financing. (See story on the high-grade bond offering here.)
“This is a holistic approach to address the concerns of both credit and equity investors,” a banker involved in the equity offering told IFR. “Oracle shares are trading up, and its credit spreads have tightened by about 25bp, so investors are responding positively.”
Shares of Oracle, rated Baa2/BBB/BBB, were trading up 2.5% at midday Monday to US$168.61, following the launch of the combination financing.
The front end of the equity financing has Oracle selling the mandatory convertible preferred that is being marketed at a 6.25%–7.25% dividend and 25% conversion premium. The mandatory is scheduled to price after the US market close Monday.
Separately, Oracle filed documents Monday for a US$20bn at-the-market (ATM) stock program – the mandatory settles on Thursday, and that is the first day stock sales under the ATM can begin.
On a standalone basis, the mandatory and ATM are among the largest ever equity financings of their type.
“None whatsoever,” said one equity-linked banker when asked about concerns about pricing the mandatory. “Not for this company.”
Oracle shares have come under pressure as investors fret over how it would finance a massive capex bill for its AI data center buildout. In October, the company announced expanded agreements with Meta, OpenAI and others that saw it outline plans to grow annual revenue to US$225bn in fiscal 2030.
Oracle effectively is selling stock through the mandatory in three years at roughly US$210 a share, the 25% conversion premium. It is marketing the mandatory at a wide range of 6.25%–7.25% to ensure it gets to that higher share price.
“The dividend marketing range is wider than is typical, but the premium is fixed. We are marketing a wider range to achieve a higher strike price on the mandatory,” the equity-linked banker said.
“The fact that Oracle's share price has come off so much could make the mandatory attractive to outright, long-only investors.”
Since its investor day presentation in October, Oracle shares have plunged more than 40% from US$313.00.
In the fiscal year ended May 31 2026, equity analysts project Oracle will spend US$50.1bn on capex, growing to US$62bn in 2027 and US$75bn in 2028, according to LSEG data and consensus estimates. That has them expecting negative free cash flow of US$23.6bn, US$21.4bn and US$17.9bn over the next three years.
The equity and new debt financing plugs that funding hole.
Bank of America, Deutsche Bank, Goldman Sachs, HSBC and JP Morgan are the other bookrunners on the mandatory convertible preferred. Bank of America, Deutsche Bank, Goldman Sachs and JP Morgan are the other placement agents on the ATM.