As the week comes to a close, SoftBank Group Corp. is poised to secure nearly $21 billion in fresh borrowings, bolstering its financial capacity to invest in artificial intelligence. In a separate development, the Japanese conglomerate is exploring the possibility of raising an additional $10 billion to $20 billion through a jumbo bond deal next week, according to individuals with knowledge of the matter. This move shows the company’s strategy of relying on debt financing to drive its AI ambitions.
Expanded Financing Arrangements
SoftBank has increased the size of its margin loan backed by shares of Arm Holdings Plc, its chip unit, by $5 billion, bringing the total to $25 billion. The company renegotiated the terms of the loan with its creditors earlier this month. Initially, the margin loan was valued at $8.5 billion in 2023, and it has undergone two subsequent increases, first to $13.5 billion in 2024 and then to $20 billion last year. This marks the third time SoftBank has expanded the facility using Arm shares as collateral.
In another development, SoftBank has secured an additional $450 million for an existing credit line, which now stands at $6.5 billion. The credit line involves more than 20 banks and carries an interest margin of 210 basis points over the Secured Overnight Financing Rate. As of May, the loan was secured by 769 million shares of Arm, representing a 72% stake in the chip designer. SoftBank owns nearly 90% of Arm.
The deal attracted strong demand from lenders, driven in part by the 142% increase in Arm’s share price this year. SoftBank initially aimed to increase the facility by $3 billion to $5 billion, but it received approximately $7 billion in demand from lenders. The loan‘s interest margin is set at around 225 basis points over the benchmark rate, with a credit adjustment spread of 25 basis points. As of December, SoftBank had drawn $20 billion from the facility, which is scheduled to expire in September 2027.
Market Concerns and Default Risk
SoftBank is meeting with fixed-income investors in New York to test appetite for a potential junk bond offering. The cost of insuring the company’s debt against default has climbed this year, with credit-default swaps marking a three-year high earlier this week.
Financing AI Investments and Asset Acquisitions
Apollo Global Management Inc. is in discussions to increase the size of a loan to SoftBank by $3.6 billion to $9 billion, which will be used to finance SoftBank’s investment in OpenAI. Additionally, SoftBank has secured an $11.87 billion loan to support its investment in the AI giant. These developments translate into a total of $20.92 billion in committed and potential new debt, which will be used to fund SoftBank’s AI initiatives, including a $65 billion commitment to OpenAI.
SoftBank has been actively acquiring assets, led by its investment in OpenAI. Other recent purchases include ABB Ltd.’s industrial robotics business for $5.4 billion and data center-focused private equity firm DigitalBridge Group Inc. for approximately $3 billion in cash. To finance these deals, SoftBank has been replacing its shorter-term loans with longer-term debt to strengthen its financial position. This week, the company repaid the entire outstanding balance of $25.9 billion on a $40 billion one-year loan used to fund its OpenAI investment.
Among major tech companies, Oracle is considered to have one of the highest exposures to spending risk due to its significant investments in AI, which may overshadow the robust growth in its cloud-computing division. Meta’s capital expenditure has substantially reduced its free cash flow. SoftBank has been on an acquisition spree, led by its OpenAI investment.
Risk and Market Reaction
A deal may be announced as early as next week. When asked about the meeting, SoftBank stated, “We have investor meetings to provide an update in New York on a non-deal basis. Nothing has been determined on bond issuance.”
