Oracle's force majeure notice on Jupiter tests who pays when AI campuses run late

Oracle issued a force majeure notice to a Blue Owl unit, STACK Infrastructure, the developer of the Jupiter data center campus in New Mexico being built to support OpenAI.

Oracle's force majeure notice cited potential delays in securing power for the project.

Blue Owl has about $3 billion of equity invested in the Jupiter project.

Oracle cannot terminate the lease under any circumstances, and Oracle is responsible for paying the debt costs.

The debt tied to the Jupiter development is trading at stressed levels, below 90 cents on the dollar.

The campus has reportedly faced infrastructure setbacks including delays to a planned natural-gas pipeline and legal challenges over water and air-quality permits.

Rather than trying to walk away as the site's main tenant, Oracle is attempting to put off payments should Project Jupiter get derailed and fail to come online in 2028 as planned.

It is not certain that the force majeure maneuver would free Oracle from its previously agreed financial obligations.

During the development stage Blue Owl earns a 9% yield on its equity; upon completion the levered yield is expected to be around 11%.

By invoking force majeure, Oracle extends the period during which it pays Blue Owl the lower development-stage rent; Blue Owl will still receive the higher rent for the originally planned duration, but its start will be delayed.

Oracle shares fell 4%, Blue Owl shares fell 4% and Bloom Energy shares fell 6%; Oracle partnered with Bloom to power the 2.45-gigawatt campus using solid oxide fuel cells.

The Oracle event is reverberating through discussions around other proposed data center financings, including SB Energy, which is developing a campus to serve OpenAI in Ohio; SB Energy decided this week to delay its IPO.

Lawyers say force majeure provisions are becoming more common in data center development agreements, raising concerns among lenders and investors.

"The financing side of the AI buildout is starting to ask much harder questions than the demand side,"

"The underlying demand still appears very strong, but investors and lenders are increasingly focused on how risk is allocated."

The participation in a deal of highly rated firms such as Oracle isn't necessarily enough to soothe anxious investors.

Companies can use force majeure provisions when events beyond their control make it difficult to meet their contractual obligations.

If the full $18 billion of loans were marked below 90 cents on the dollar, the paper loss would exceed $1.8 billion.

AI-related capital spending by the six biggest US technology companies is projected to reach around $1 trillion in 2027, according to Moody's, raising concerns among lenders about whether markets can absorb the volume of issuance without wider pricing pressure or tighter terms.

The reported $18 billion of bank debt is six times Blue Owl's roughly $3 billion of equity.

A one-year delay at the development-stage yield pays Blue Owl about $270 million instead of about $330 million on its roughly $3 billion, a gap of roughly $60 million.

The Jupiter program is being delayed by a year.

"Project Jupiter remains on our planned schedule,"