Junk Bond Rush

SoftBank Borrows For AI

Masayoshi Son’s SoftBank just raised $11.1 billion through the largest high-yield corporate bond sale ever recorded. It will use much of the money to fund its investment in OpenAI.

SoftBank has a BB+ credit rating from S&P and Fitch, meaning it’s in the junk bond territory — just one step below an investment grade. The Japanese investment company agreed to pay investors yields as high as 9.75% amid growing doubts about AI spending. This is 2-3 percentage points higher than peers holding the same credit rating. The offer proved so attractive that demand for the bonds reportedly exceeded supply by three to four times.

The company has issued nearly $15 billion of junk bonds this year, accounting for more than half of the entire high-yield corporate issuance in Asia Pacific.

Masayoshi Son's Ecosystem

Investors initially cheered SoftBank’s record debt sale, sending its shares up more than 7%, but by the end of the day shares closed only half a percent up. This highlights how divisive Softbank’s ambitious push into AI is. It's trying to build an entire AI ecosystem, spanning chips, data centers, robotics and software.

• OpenAI: More than $64B committed, giving SoftBank roughly a 13% stake
• Arm: Chip designer that Softbank has an 86% stake in worth of roughly $280 billion
• SB Energy: Softbank’s data-center subsidiary
• Intel: a $2B equity investment
• Stargate: Part of the group developing a $500B data center project in the US
• Recent deals: DigitalBridge bought for $4B, Ampere Computing for $6.5B, ABB Robotics for $5.4B, a stake in Perplexity AI

AI's Growing IOU

Much of the AI boom has been funded by tech giants such as Microsoft, Amazon and Alphabet, burning through their huge cash piles and also issuing more debt. This has been firmly investment grade (rated between BBB- and AAA), competing for the same capital as governments issuing new bonds.

Private credit — direct lending by non-banks — has also played a big role, financing data centers. But as the AI boom expands, junk bond issuance is growing, too.

Junk bonds carry a higher risk of a default, which is why investors demand higher interest payments. Capital markets are still willing to finance AI's giant spending plans if the yield is good enough.

In Search of Exit

One looming question is whether SoftBank can eventually cash out some of these bets. Its data-center developer SB Energy hopes to go public at a valuation of roughly $50 billion this year, but the process has stalled. Data centers, with high power and water needs, face increasing public opposition.

None of SB Energy's data centers are up and running yet, and it has flagged a whopping $174 billion capital needs to fulfil existing contracts. Reportedly, it’s attempting to sell $5 billion of debt but has faced tepid demand.

SB Energy is reliant on OpenAI as a data center customer. And OpenAI’s own IPO has been pushed back to next year. All eyes are on the rival Antropic, which is expected to list in November.