A major credit rating agency has downgraded the rating of tech giant and Wisconsin data center developer Oracle in the midst of the company’s legal battle with Wisconsin regulators over a new rule that requires data center developers with lower credit ratings to post financial guarantees.
On July 9, S&P Global Ratings bumped down Oracle’s BBB credit rating to BBB- status. The category falls at the bottom level of the agency’s investment-grade tier. If the rating falls further, it would land in a tier defined by “significant speculative characteristics,” signaling higher investment risk.
S&P analysts said the company’s “rapidly expanding AI infrastructure business is increasing its overall credit risk, reflecting our more cautious view of the AI infrastructure industry.”
The analysts said Oracle’s growing AI infrastructure business is “diluting its strong business risk profile,” saying they “underestimated the scale of the investments required to expand the AI business and its impact on our overall view of Oracle’s creditworthiness.”
When contacted by the Milwaukee Journal Sentinel, an Oracle spokesperson responded with a statement July 17:
“Oracle remains strongly committed to maintaining an investment-grade credit rating as our top capital allocation priority. Alongside the updated BBB- rating which is investment grade, S&P’s stable outlook should provide more forward-looking certainty to investors. We remain confident in and focused on executing our business plan over the next months and years tied to the unprecedented opportunities for growth and strong returns on capital tied to cloud infrastructure.”
Oracle’s credit rating is at the center of a legal battle playing out in Ozaukee County Circuit Court.
Ozaukee County is where the company is building a $15 billion hyperscale AI data center campus, alongside OpenAI and Vantage Data centers, as part of the Stargate project.
In April, Wisconsin’s Public Service Commission (PSC), which regulates utilities in the state, approved a new electric rate structure that requires data center developers with credit ratings below A- to post financial guarantees in the form of cash or lines of credit.
According to the commission, the requirement is meant to hold data centers responsible for their immense energy needs and prevent those costs from raising residential electric rates.
On June 19, Oracle sued the PSC, objecting to that rule.
According to Oracle’s complaint, the company would be required to post $100 million annually in collateral.
The PSC filed a response on July 10 and asked the court to dismiss the lawsuit, calling it a “red herring” that “obfuscates the true nature” of Oracle’s lawsuit: to exempt itself from oversight in data center-related dealings with We Energies.
“[Oracle] asks this Court to overturn over one-hundred years of established caselaw and allow it to dictate one-off preferential terms of service with the utility, bypassing Commission oversight altogether,” the response said.
Oracle’s lawsuit was filed when the company held the BBB rating and before S&P analysts downgraded the company further to BBB-.
S&P analysts still consider Oracle’s outlook “stable,” reflecting their expectation that the company will become more profitable as “capacity comes online and business scales.”
But much of analysts’ uncertainty about Oracle lies in its partnership with OpenAI, the analysts wrote.
OpenAI and Oracle are partners in a $300 billion cloud computing contract beginning in 2027, where Oracle provides computing power and data center infrastructure for OpenAI’s models. Alongside SoftBank, the companies are spearheading a $500 billion nationwide AI infrastructure buildout, known as Stargate.
The Port Washington data center campus is one of Stargate’s flagship projects.
“OpenAI remains a key credit risk,” analysts wrote.
“If OpenAI were unable to pay Oracle, we believe Oracle could be left with massive data center leases that it might be unable to exit or have to re-lease to new tenants under less-favorable terms,” analysts also said.
(This story was updated to add new information.)
Contact Claudia Levens at clevens@usatodayco.com. Follow her on X at @levensc13.
This article originally appeared on Milwaukee Journal Sentinel: Oracle credit rating drops amid battle with Wisconsin regulators
Reporting by Claudia Levens, Milwaukee Journal Sentinel / Milwaukee Journal Sentinel
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By Claudia Levens, Milwaukee Journal Sentinel | USA TODAY Network
