Oracle’s $10bn Michigan data centre in limbo after Blue Owl funding talks stall
Investment firm concerned about tougher debt terms and the risk of delays to the vast project
Blue Owl has played a vital role in Oracle’s big data centre projects, including a $15bn site in Abilene, Texas and an $18bn campus in New Mexico © Bloomberg
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Oracle’s largest data centre partner Blue Owl Capital will not back a $10bn deal for its next facility, as the software group faces increased concerns about its rising debt and artificial intelligence spending.
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Oracle’s largest data centre partner Blue Owl Capital will not back a $10bn deal for its next facility, as the software group faces increased concerns about its rising debt and artificial intelligence spending.
Blue Owl had been in discussions with lenders and Oracle about investing in the planned 1 gigawatt data centre being built to serve OpenAI in Saline Township, Michigan.
But the agreement will not go forward after negotiations stalled, according to three people familiar with the matter.
The private capital group has been the primary backer for Oracle’s largest data centre projects in the US, investing its own money and raising billions more in debt to build the facilities. Blue Owl typically sets up a special purpose vehicle, which owns the data centre and leases it to Oracle.
Larry Ellison’s computing giant has deals to supply computing power from these data centres to AI groups such as OpenAI.
The breakdown of funding discussions with Blue Owl leaves the financing of the Michigan facility in doubt, as Oracle has not yet signed a deal with a new backer, according to the people close to the matter.
Blue Owl’s role would probably have involved arranging up to $10bn of financing and making a large equity investment.
Blackstone has held talks to step in as a financial partner, but has not yet signed a deal to invest in Oracle’s data centre, the people said.
The funding turbulence points to increasing strains in Oracle’s AI infrastructure strategy.
The group, founded by Ellison, has embarked on an AI data centre spending spree in recent months and has aggressively tapped debt markets to build its capacity, spooking investors and prompting concern from rating agencies and analysts.
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Oracle shares have fallen about 46 per cent from their peak in September, and its bonds have also sold off. They closed 5.4 per cent lower on Wednesday following the FT’s report. Blue Owl shares dropped 2.8 per cent.
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Oracle shares have fallen about 46 per cent from their peak in September, and its bonds have also sold off. They closed 5.4 per cent lower on Wednesday following the FT’s report. Blue Owl shares dropped 2.8 per cent.
People close to the Michigan deal said lenders pushed for stricter leasing and debt terms amid shifting market sentiment around enormous AI spending including Oracle’s own commitments and rising debt levels.
As a result, the deal was less attractive financially for Blue Owl than its earlier projects, according to some of the people.
Blue Owl was also concerned that the Saline Township site, being built by developer Related Digital, might face delays.
Blackstone and Blue Owl declined to comment.
Oracle said: “Our development partner, Related Digital, selected the best equity partner from a competitive group of options, which in this instance was not Blue Owl . . . Final negotiations for their equity deal are moving forward on schedule and according to plan.”
Related Digital said: “This is an exceptional project that drew significant interest from equity partners. We evaluated all of our options and selected our equity partner of choice for their unparalleled expertise in the space.”
Related Digital declined to name the equity partner for the project. A person close to the company said it was in the “final stages of diligence” with the investor.
Oracle is building the site on farmland in Saline Township, near the city of Ann Arbor, as part of a $300bn agreement with OpenAI to provide it with 4.5GW of computing power over the next five years.
The project has faced issues since it launched in August, including local authorities initially refusing a rezoning application to allow a data centre on the site, resulting in a lawsuit. The case has since settled, allowing construction to begin in the first quarter of next year.
One person familiar with the structure of Oracle’s deals with lenders and data centre operators said that the company was facing more onerous terms on its leases than rivals such as Amazon and Microsoft. “They would rather work with a hyperscaler that has more experience and a less speculative project pipeline,” they said.
Oracle had about $105bn in net debt including lease obligations at the end of November, up from nearly $78bn a year ago, according to its most recent earnings. Morgan Stanley forecasts this will soar to about $290bn by 2028. Oracle sold $18bn of bonds in September and is in talks to raise $38bn in debt financing through a number of US banks.
The company disclosed last week in regulatory filings that its total lease commitments had jumped from $100bn to $248bn in the three months to the end of November.
Blue Owl has played a vital role in Oracle’s big data centre projects, including a $15bn site in Abilene, Texas and an $18bn campus in New Mexico.
The deals are structured so that Blue Owl typically sets up an SPV which owns the data centres and secures the financing via third parties, with Oracle agreeing at the outset to a long-term lease.
The Abilene site, which will be OpenAI’s first large data centre in the US when it completes in mid-2027, is majority owned by Blue Owl. It invested about $3bn of equity and borrowed approximately $10bn from JPMorgan to fund the construction.
The debt will be repaid via Oracle’s 15-year lease on the site. Blue Owl’s own targeted returns on that project are as high as 25 per cent, according to a person close to the deal.
Blue Owl has largely pioneered this type of arrangement with large tech companies that want to offset the upfront costs of enormous data centre construction projects. It structured a similar deal with Meta in October, raising $30bn, including $27.5bn of debt, to build the Facebook parent’s Hyperion data centre in Louisiana.
