Oracle Cites ‘Force Majeure’ to Seek Cover From Data Center Delays

Author: Bloomberg Television · Watch on YouTube

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Original language: English

Original video: Oracle Cites ‘Force Majeure’ to Seek Cover From Data Center Delays · Channel: Bloomberg Television · 04:20 · Watch on YouTube

Topics: AI governance and regulation, AI infrastructure and hardware, Markets and economy

Summary

Oracle has invoked force majeure as a defensive measure amid uncertainty over delays at a major New Mexico data center, not as an indication that it plans to abandon the project. The campus has faced local opposition and regulatory concerns related to water use, emissions, and economic benefits, raising questions about whether it can go online on schedule. The project has become a prominent example of political and community challenges facing data centers, prompting investors to consider the risks to financing and tenant payments. Blue Owl says the notice does not change its multiyear financial commitment, though loans tied to the project have traded below 90 cents on the dollar.

Key points

Oracle issued a force majeure notice related to potential delays and cost obligations at a large New Mexico data center.
The project is a 1,400-acre campus in Southern New Mexico, near White Sands National Park and the US-Mexico border.
Local concerns include water consumption, greenhouse emissions, and whether New Mexico will receive sufficient financial returns.
The notice is described as a defensive shield against certain financial commitments if delays or overruns occur, rather than a plan to leave the project.
The project has become a high-profile example of the challenges facing data centers across the country.
Investors are assessing whether local opposition and political scrutiny could affect other data center projects and their financing.
The discussion raises questions about whether lenders will view data center lease payments as dependable and whether costs of capital could rise.
Loans tied to Project Jupiter have reportedly traded below 90 cents on the dollar, a sign of market stress, though not distress.
Blue Owl said the notice does not change its multiyear financial commitment.

Chapters

Start	Chapter	Summary
00:00	Local challenges around the New Mexico campus	The discussion introduces Oracle’s force majeure notice and outlines local concerns and regulatory challenges facing the data center project.
01:06	Oracle’s notice as a defensive measure	The correspondent says Oracle is seeking protection from certain costs if the project is delayed, not signaling that it intends to walk away.
02:13	A test case for data center development	The New Mexico project is described as a poster child for nationwide data center opposition and growing political scrutiny.
03:19	Financing risks and market reaction	The conversation turns to the reliability of lease payments, the potential cost of capital, trading in project loans, and Blue Owl’s commitment.

Quotes

it’s a classic case of the friction between the grand ambitions of all the AI leaders and the AI business economy and local realities. — 00:00

The point here is it is purely a defensive shield. — 01:06

this data center project, this campus in New Mexico has become a poster child for all the issues that data centers across the country are facing. — 02:13

the only thing we’re betting on is the creditworthiness of our tenants. — 03:19

this notice does not change the multiyear financial commitment. — 04:20

Concepts and entities

force majeure, Oracle, Blue Owl, STACK Infrastructure, Project Jupiter, data center, Sri Natarajan, CDS market

Full transcript (original language)

00:00 Oracle trying to protect itself from cost tied to a massive New Mexico data center by invoking force majeure. Let’s get more insight now from Bloomberg’s Wall Street correspondent, Sri Natarajan. And, Sri, I know you’ve been tracking this data center very closely, given Blue Owl’s investment and others. What’s gone wrong that they’re saying there is a chance we might not make our lease payments? I mean, it’s a classic case of the friction between the grand ambitions of all the AI leaders and the AI business economy and local realities. The project, the data center we’re talking about is this massive 1,400 acre campus that’s being built in Southern New Mexico, beautiful

00:35 part of the country right next to White Sands National Park bordering Mexico, but it is also a rural county. And there has been a tremendous amount of local pushback, regulatory challenges, you know, where people are worried about the water consumption, greenhouse emissions, whether there are sufficient financial returns to New Mexico. Yes. Oracle, Blue and everyone involved with the data center project says, this is a good thing for the state. This will bring a lot of benefits to the local economy. This is important and needed. But what all this challenge and all

01:06 this friction has meant is it has thrown into uncertainty whether the project can truly go online as previously planned. Which owns the project developer stack infrastructure, and Oracle, which will be the tenant, which will be leasing which will be leasing the compute from this data center facility, believe everything’s on track. So why are we talking about the force majeure notice? The point here is it is purely a defensive shield. It is not Oracle saying that it wants to walk away from the project, that it’s tired of all the complaining and the frustration, and it is just going away. But it wants to make sure that it is

01:39 not racking up expenses. It is not on the hook for certain financial commitments and obligations if there are delays, if there are certain overruns, and if things don’t go according to schedule, which as of today, they’re still hoping remains the case. But there is no denying there is a lot of nimbyism when it comes to data centers. Yeah. So let me put you on the spot. I mean, is this the canary in the coal mine? Is this basically something we should expect? We’re gonna see navigation around it to your point. It’s gonna be more of a legal posturing. Does this change things? Are we now gonna have smaller data centers? Do we have more instead of larger ones? And,

02:13 obviously, then you have a different kind of marginal cost for compute. And what are you thinking there? I’ll take you up on the canary in the coal mine question because in some ways, this data center project, this campus in New Mexico has become a poster child for all the issues that data centers across the country are facing. You’re seeing a lot of price action in the stocks tied to Oracle and the CDS market and certain other related stocks. That doesn’t necessarily mean it’s all tied to this one project, which has been the project Jupiter. But investors are trying to analyze what does it truly mean for everything else. Because whether it’s Silicon Valley in Northern Virginia or other parts of the country, the data center

02:46 projects coming up in the battleground states heading into the midterm elections, we have seen problems everywhere. Did we really think maybe a year or two ago that data centers would be the catch line political rhetoric, campaigning rhetoric heading into the elections? But that’s what it’s turned into. And that is why when you see if even if this is just a fresh wrinkle in a project that’s already been massively controversial, Everyone is trying to tease out what’s the next step and what does it mean for every other project because a lot of capital is being allocated into this process, and that’s the challenge for the investors. Is this

03:19 a revolution that will bring in abundance or lead to extinction? I I’m right there with you, Sherry. The first thing I thought about when I saw this story was the many, many conversations I’ve had with private capital players. I know you have too saying, we’re not making a directional bet on AI. In fact, the only thing we’re betting on is the creditworthiness of our tenants. Basically, rental payments for these leases was treated as a sure thing. And I wonder what happens if all of a sudden this throws that into question. Does the cost of capital get higher? Presumably, bond yields will go

03:50 higher for these projects, and there’ll be less appetite or at least pushback. Does this add another wrinkle in the whole conversation of how fast can we build if all of a sudden our assumptions around the safety of these projects change? You can see certain clues in private markets trading. Right? When this project Jupiter was rolled out, there was an $18,000,000,000 loan that was put forward, a commitment from about 20 banks. Now there has been some amount of trading in the secondary market tied to those bonds and to those loans, and that’s now trading below 90¢ on the dollars. That might not

04:20 be distressed levels, but it’s certainly stress levels. It’s not a level where a lender would like to see the trading at. So that tells you that when you see something like this, which in effect is a bit of a spanner in the works, there is going to be concern out there, and that is what is being expressed in the market. Meanwhile, it is important to point out that Blue Owl has come out and said that this notice does not change the multiyear financial commitment. So it is trying to signal to the market that, you know, the payments that it expects will be coming in as planned.