In order to fund their roughly eleventy squijillion dollars in projected AI-related capex over the next several years, prominent hyperscalers like Alphabet, Amazon, Alphabet, Meta, Microsoft, and Oracle have turned to the debt markets in a big way. According to this recent Reuters article, those companies have raised over $120 billion in corporate bonds last year. Not surprisingly, investor demand for these securities is very high, but Reuters points out that even by investment grade issuer standards, the covenants in some of these recent deals have been remarkably light:

Investment-grade borrowers with strong credit profiles typically include fewer covenants in debt agreements than their junk-rated counterparts. Yet most include basic investor guardrails, especially a standard change-in-control covenant protecting ​investors ​in the event of M&A or another change in ownership. ​Alphabet’s bonds do not carry these protections, noted ‌Anthony Canales, head of global research at New York-based Covenant Review.

The five major AI hyperscalers – Amazon, Alphabet, Meta, Microsoft, and Oracle – issued $121 billion in U.S. corporate bonds last year, according to a January report by BofA Securities.

Alphabet and Amazon did not respond to requests for comment, while Oracle, Meta and Microsoft declined to comment.

Oracle’s $25 billion note offering on February 2, and Meta’s $30 billion bond offering in October, similarly lacked change-in-control and other basic covenants, Canales noted.

The article cautions that smaller players may be in for a rude awakening if they think they’ll get similar terms for their own offerings. As with everything else that’s AI-related, size matters in the debt markets too.

– John Jenkins