Oracle's Force Majeure Declaration Exacerbates Financial Pressures

Morgan Stanley said that the force majeure notice submitted by Oracle to the developer of a massive data center in New Mexico has heightened uncertainty in the data center financing market, prompting investors to scrutinize more closely the loan terms and lease agreements underpinning the expansion of artificial intelligence infrastructure. The bank believes the greatest impact will be concentrated on projects still facing high construction risks or relying on tenants with weaker credit profiles, while assets nearing full operation will be less exposed to these concerns. Morgan Stanley added that the key issue is whether Oracle’s move will remain an isolated incident or become a precedent that other major companies might follow, potentially leading the market to reassess contractual protections in data center deals. The notice led to a widening of data center bond spreads and a rise in the cost of insuring Oracle’s debt against default to record levels, while Morgan Stanley maintained a cautious stance toward the company due to liquidity consumption, elevated debt levels, and ongoing credit rating risks. The Jupiter project was one of the flagship initiatives under the StarGate initiative announced by U.S. President Donald Trump alongside leaders of Oracle, OpenAI, and SoftBank, serving as a cornerstone of the expansion of U.S. AI infrastructure. The project was designed with a capacity of 2.45 gigawatts, enough electricity to power approximately 1.8 million homes simultaneously, making it one of the largest planned data centers globally. However, over the past two years, the project has faced a series of obstacles, most notably the rejection of key permits related to power supply, turning it into a symbol of growing opposition to the massive wave of AI data center expansion in the United States. A consortium of about 20 banks had provided $18 billion in financing to support the construction of the massive complex, one of the largest deals linked to the AI boom. Observers note that invoking the force majeure clause could raise broader questions about the robustness of data center lease contracts, as many such agreements include provisions allowing customers to withdraw if services do not commence by agreed-upon dates. The recent pressures followed the delay of a natural gas pipeline project developed by Energy Transfer, which was scheduled to supply fuel to the project this month. The pipeline’s commissioning was delayed by about six months until February 2027 after repeated rejections by the New Mexico Bureau of Land Management of the proposed pipeline route.