SoftBank adds $21 billion to AI firepower in new debt

What happened

SoftBank Group Corp. is closing out the week with nearly $21 billion in potential fresh borrowings as it builds out its artificial intelligence financing capacity. It’s also looking to raise another $10 billion to $20 billion next week in a separate jumbo bond deal.

The deal drew strong demand, helped by the 142 per cent spike in Arm’s share price this year. SoftBank was initially looking to increase the facility by $3 billion to $5 billion, but received about $7 billion in demand from lenders, the people said. 5 billion, more than 20 banks are currently involved, according to people familiar with the deal.

SoftBank declined to comment on the increase in the margin loan backed by Arm shares and on the expanded credit line. The company has also been meeting with fixed-income investors in New York this week to test appetite for a possible junk bond offering that could total $10 billion to $20 billion, people familiar with those discussions have said.

“We have investor meetings to provide an update in New York on a non-deal basis. SoftBank has been on an acquisition spree, led by its OpenAI investment. 4 billion and data centre-focused private equity firm DigitalBridge Group Inc. To finance those deals, SoftBank has been replacing its shorter-term loans with debt carrying longer maturities to strengthen its financial position.

Why it matters

The Japanese conglomerate increased its margin loan backed by shares of its chip unit Arm Holdings Plc by $5 billion to $25 billion, people familiar with the matter said on Friday. 5 billion, according to people familiar with that deal. Apollo Global Management Inc. 6 billion to $9 billion to help it finance its investment in AI giant OpenAI.

87 billion loan, also to support its OpenAI investment, according to people familiar with those deals. One of the world’s biggest investors in AI, SoftBank is at the epicenter of debates about the future of debt-fueled bets on the sector, at a time when market volatility has increased amid safety warnings. It’s among tech giants including Oracle Corp. and Meta Platforms Inc.

that are pouring unprecedented amounts of capital into AI technologies and infrastructure. In its margin loan backed by shares of Arm, the Japanese firm renegotiated the terms and signed a deal with creditors this month, said the people, who asked not to be identified, discussing private information.

It’s the third time SoftBank is upsizing its margin loan using Arm shares as Son needs billions of dollars to fund his growing AI investments. 5 billion facility in 2023. 5 billion in 2024 and then to $20 billion last year. As of May, SoftBank’s loan was secured by 769 million shares of Arm, representing a 72 per cent stake in the chip designer, according to company filings.

SoftBank had drawn $20 billion from the facility as of December, with the loan set to expire in September 2027. The loan remains priced at an interest margin of about 225 basis points over the benchmark Secured Overnight Financing Rate and a credit adjustment spread of 25 basis points, some of the people said.

What to watch

Among tech giants, Oracle is considered to have one of the highest exposure to spending risk among the major AI players, which is overshadowing robust growth in its cloud-computing division. For Son, his growing list of ambitions includes aggressive data centre expansion in the US and France. 8 gigawatts of data centre capacity across America that is estimated to require $174 billion in capital spending.

The cost of insuring SoftBank’s debt against default has climbed this year, with credit-default swaps marking a three-year high earlier this week.