Blue Owl Capital, Oracle’s biggest data center partner, will not back a $10 billion deal for its next facility, as the software group faces growing concerns about its rising debt and artificial intelligence spending.
Blue Owl was in discussions with lenders and Oracle about investing in a planned 1 gigawatt data center being built to serve OpenAI in Saline Township, Michigan.
But according to three people familiar with the matter, the agreement will not move forward after the talks stalled.
The private capital group has been the primary backer for Oracle’s largest data center projects in the US, investing its own money and raising billions of dollars in debt to build the facilities. Blue Owl typically sets up a special purpose vehicle, which owns the data center and leases it to Oracle.
Larry Ellison’s computing giant has struck a deal to supply computing power from these data centers to AI groups like OpenAI.
The breakdown of funding discussions with Blue Owl has thrown the financing of the Michigan facility into doubt, according to people familiar with the matter, as Oracle has not yet signed a deal with a new backer.
Blue Owl’s role will likely include arranging up to $10 billion of financing and making a large equity investment.
Blackstone has been in talks to step in as a financial partner, but has not yet signed a deal to invest in Oracle’s data centers, the people said.
The funding turmoil points to growing tensions in Oracle’s AI infrastructure strategy.
The group founded by Ellison has in recent months begun spending on AI data centers and aggressively tapping debt markets to build up its capacity, spooking investors and raising concerns from ratings agencies and analysts.
Oracle shares have fallen about 46 percent from their high in September, and its bonds have also sold off. They closed 5.4 percent lower on Wednesday after the FT report. Blue Owl shares fell 2.8 percent.
People close to the Michigan deal said lenders insisted on tighter lease and loan terms amid changing market sentiment around Oracle’s own commitments and huge AI spending, including rising debt levels.
As a result, according to some, the deal was less financially attractive for Blue Owl than its previous projects.
Blue Owl was also concerned that there could be delays at the Saline Township site being built by developer Related Digital.
Blackstone and Blue Owl declined to comment.
Oracle said: “Our development partner, Related Digital, selected the best equity partner from a competitive pool of options, which in this instance was not Blue Owl… Final negotiations for their equity deal are proceeding on schedule and as planned.”
Related Digital said: “This is an extraordinary project that has attracted significant interest from equity partners. We evaluated all of our options and selected the equity partner of our choice for their unique expertise in the field.”
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 due 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 deal with OpenAI to provide 4.5GW of computing power over the next five years.
The project has faced problems since its launch in August, including local officials initially rejecting a rezoning application to allow a data center on the site, resulting in a lawsuit. The matter has now been resolved, allowing construction to begin in the first quarter of next year.
A person familiar with the structure of Oracle’s deals with lenders and data center operators said the company was facing more stringent terms on its leases than rivals such as Amazon and Microsoft. “They would prefer to work with a hyperscaler that has more experience and a less speculative project pipeline,” he said.
Oracle had about $105 billion of net debt including lease obligations at the end of November, up from about $78 billion a year earlier, according to its most recent earnings. Morgan Stanley estimates this will grow to approximately $290bn by 2028. Oracle sold $18bn of bonds in September and is in talks to raise $38bn in debt financing through several US banks.
The company disclosed in a regulatory filing last week that its total lease commitments rose by $100 billion to $248 billion in the three months to the end of November.
Blue Owl has played a key role in Oracle’s large data center projects, including a $15 billion site in Abilene, Texas, and an $18 billion campus in New Mexico.
The deals are structured such that Blue Owl typically sets up an SPV that owns the data centers and secures financing through a third party, with Oracle agreeing initially to a long-term lease.
The Abilene site, which will be OpenAI’s first large data center in the US when completed in mid-2027, is majority-owned by Blue Owl. It invested approximately $3 billion of equity and borrowed approximately $10 billion from JPMorgan to finance construction.
The loan will be repaid through Oracle’s 15-year lease on the site. Blue Owl’s own target return on that project is up to 25 percent, according to a person familiar with the deal.
Blue Owl has pioneered this type of arrangement extensively with large technology companies that want to offset the upfront costs of huge data center construction projects. It struck a similar deal with Meta in October, raising $30 billion, including a $27.5 billion loan, to build Facebook parent’s Hyperion data center in Louisiana.
