Softbank's mega junk-bond deal shows capital for the AI race is getting more expensive

By Joy Wiltermuth

The artificial-intelligence build-out is officially crossing over to the world of junk bonds

Softbank is poised to price one of the biggest U.S. junk bonds in history as companies race to finance AI.

The artificial-intelligence build-out has officially begun crossing over to the world of junk bonds, where investors expect to be paid more for taking on bigger risks.

SoftBank Group (JP:9984) this week plans to price its long-awaited mega junk-bond deal, a financing that as of Tuesday evening was expected to reach about $11 billion in size, spread across two currencies, according to a person with knowledge of the matter.

Nothing is set in stone until the bonds actually price. But a deal of that size would be one of largest of its kind to hit the U.S. high-yield, or "junk bond," market, as Bloomberg News reported.

Roughly $10 billion is expected to be raised from the sale of several dollar-denominated tranches, with pricing on the 71/2-year tranche expected in the high 9% to 10% range, the person with knowledge of the matter said. Another EUR1 billion ($1.1 billion) is expected to be raised from several euro tranches.

SoftBank has been in "investment mode," according to analysts at CreditSights, who in August pointed to its $64.6 billion footprint in OpenAI, or roughly a 13% stake.

Along with its Ampere and ABB Robotics investments, SoftBank has an "increasingly acute" asset-concentration risk as it focuses on AI, the CreditSights strategy team led by Mark Chapman wrote in an August client note.

SoftBank is rated in the BB+ category, the highest junk-bond bracket below investment-grade. Its representatives didn't immediately respond to a request for comment.

Alphabet (GOOG) (GOOGL) raised $25 billion in early August by selling investment-grade bonds, including a tranche due in 2033 that pay an annual rate of 5.2%.

That followed on the heels of the newly public SpaceX (SPCX) selling $25 billion in investment-grade bonds.

So far, the bulk of AI-related debt issuance has been funded in the U.S. investment-grade corporate-bond market since the deluge began in earnest about a year ago. There's also been borrowing in the loan- and asset-backed markets, as well as in construction financing.

Heavy supply has pressured AI-related bond spreads wider, even though the bulk of the roughly 5.7% yield of late in the ICE BofA US Corporate Index still comes from the surge in the underlying 10-year Treasury yield BX:TMUBMUSD10Yto about 5%.

The yield for a related high-yield index was pegged closer to 7.5%.

Credit rating firm KBRA estimated in late August that capex across Meta (META), Amazon (AMZN), Alphabet, Microsoft (MSFT), Nvidia (NVDA), Broadcom (AVGO) and Oracle (ORCL) had exploded to about $3.2 trillion in June from $243 billion at the end of 2024, when factoring in the off-balance-sheet funding commitments.

The KBRA report said there's no immediate liquidity or solvency concern, but that it ultimately will boil down to whether AI demand, infrastructure use and cash flows develop quickly enough to support these obligations.

-Joy Wiltermuth

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