What are credit default swaps and what does the spread widening mean?

Credit default swaps are contracts where buyers pay for protection if the borrower can't repay its debt. A widening spread means investors view the debt as riskier.

Why is Oracle's credit rating at risk of a downgrade?

S&P downgraded Oracle to BBB- in July, noting its expanding infrastructure business is increasing credit risk. Another downgrade could be triggered by leverage exceeding 4x or weak free operating cash flow by fiscal 2029.

How much debt does Oracle have related to its AI buildout?

Oracle has issued $118 billion in long-term debt and has another $39 billion in capital and lease obligations, according to FactSet data.

AI Stocks & MarketsTop Companies' AI MovesAI Business & IndustryTop Companies AI1h agoOct 20, 2026, 06:31 JST

Oracle credit default swaps at 295 basis points signal junk risk

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3 Key Points

What happened
Oracle's five-year credit default swaps — insurance against default — trade at 295 basis points after briefly hitting 300 bps Thursday, up 287% in one year, a range S&P Global's Gavan Nolan says is more in line with BB and B high-yield credit.
Why it matters
A junk rating would force the company to borrow at higher rates and could pressure investment-grade-only investors into forced sales, according to analysts.

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Context & Analysis

Oracle's credit default swaps have widened sharply, rising 287% over the past year, as the company has taken on significant debt to fund its AI infrastructure buildout. Oracle has issued $118 billion in long-term debt and carries another $39 billion in capital and lease obligations, according to FactSet, while analysts expect free cash flow of -$23.7 billion this year and -$36 billion in 2027. S&P downgraded Oracle to BBB- in July, citing the company's rapidly expanding infrastructure business as increasing overall credit risk, and noted it expects weaker operating cash flow in 2027.

Despite the stress, some fixed-income investors remain confident. Vanguard's Brad Collins said balance sheets are in a healthy starting spot and he would not extrapolate what is seen in high yield to investment grade. Oracle itself said maintaining an investment-grade rating is its first priority and that it expects strong free cash flows once projects are ramped.

FAQ

What are credit default swaps and what does the spread widening mean?: Credit default swaps are contracts where buyers pay for protection if the borrower can't repay its debt. A widening spread means investors view the debt as riskier.
Why is Oracle's credit rating at risk of a downgrade?: S&P downgraded Oracle to BBB- in July, noting its expanding infrastructure business is increasing credit risk. Another downgrade could be triggered by leverage exceeding 4x or weak free operating cash flow by fiscal 2029.
How much debt does Oracle have related to its AI buildout?: Oracle has issued $118 billion in long-term debt and has another $39 billion in capital and lease obligations, according to FactSet data.

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