nearing

A gauge of risk on Oracle Corp.’s debt reached a three-year high in November, and things are only going to get worse in 2026 unless the database giant is able to assuage investor anxiety about a massive artificial intelligence spending spree, according to Morgan Stanley.

A funding gap, swelling balance sheet and obsolescence risk are just some of the hazards Oracle is facing, according to Lindsay Tyler and David Hamburger, credit analysts at the brokerage. The cost of insuring Oracle Corp.’s debt against default over the next five years rose to 1.25 percentage point a year on Tuesday, according to ICE Data Services.

The price on the five-year credit default swaps is at risk of toppling a record set in 2008 as concerns over the company’s borrowing binge to finance its AI ambitions continue to spur heavy hedging by banks and investors, they warned in a note Wednesday.

The CDS could break through 1.5 percentage point in the near term and could approach 2 percentage points if communication around its financing strategy remains limited as the new year progresses, the analysts wrote. Oracle CDS hit a record 1.98 percentage point in 2008, ICE Data Services shows.

A representative for Oracle declined to comment.

Oracle is among firms taking part in an artificial intelligence spending race, which has quickly made the data center giant the credit market’s barometer for AI risk. The company borrowed $18 billion in the US high-grade market in September. Then in early November, a group of about 20 banks arranged a roughly $18 billion project finance loan to construct a data center campus in New Mexico, which Oracle will take over as tenant.

Banks are also providing a separate $38 billion loan package to help finance the construction of data centers in Texas and Wisconsin developed by Vantage Data Centers, Bloomberg reported last month. Lenders involved in these construction loans linked to Oracle are likely a key driver of the surge in trading volume on the Oracle’s CDS recently, a trend that may persist, according to Morgan Stanley.

“Over the past two months, it has become more apparent that reported construction loans in the works, for sites where Oracle is the future tenant, may be an even greater driver of hedging of late and going forward,” wrote the analysts.

There is a risk that some hedges by banks could unwind if and when banks distribute these loans to other parties, they wrote. Still, other parties may also hedge at some point even if down the road plus the construction debt funding needs don’t stop after the Vantage sites and the New Mexico site.

Last month, the analysts said they expect near-term credit deterioration and uncertainty to drive further hedging by bondholders, lenders and thematic players.

“The bondholder hedging dynamic and also the thematic hedging dynamic could both grow in importance down the road,” they added.

Oracle CDS have underperformed the broader investment-grade CDX index and Oracle corporate bonds have underperformed the Bloomberg high-grade index amid the jump in hedging demand and the weakening sentiment. Concerns have also started to weigh on Oracle’s stock, which the analysts said may incentivize management to outline a financing plan on the upcoming earnings call, including details on Stargate, data centers and capital spending.

The analysts had previously been recommending investors buy Oracle bonds and CDS in what is known as a basis trade, to profit from their expectation that credit derivatives would widen more than the bonds. Now they’re saying it’s a cleaner trade to just buy the CDS outright.

“Therefore, we are closing the ‘buy bond’ part of the basis trade, and keeping the ‘buy CDS protection’ leg of it,” they wrote. “We think a trade in CDS outright is cleaner right now and will result in a greater spread move.”

Larry Ellison, Oracle’s chairman of the board, is backing his son David Ellison’s bid to acquire Warner Bros Discovery, which is also considering offers from Netflix and Comcast.

Mutua writes for Bloomberg.

NEW ORLEANS — LeBron James is making progress in his return from injury, and that’s a good sign for a Lakers team that has performed unevenly over a five-game trip.

Before the Lakers’ 118-104 win over the New Orleans Pelicans, Lakers coach JJ Redick said James, who has been dealing with sciatica, took part in an individual workout on Friday following consecutive days of five-on-five practice with the South Bay Lakers.

The Lakers finish their trip against Milwaukee on Saturday night. James will then practice with the Lakers on Monday. If all goes well, the NBA’s all-time leading scorer could start his league-record 23rd season Tuesday against Utah at Crypto.com Arena.

When he does return, how will James, who turns 41 next month, adjust to the chemistry the Lakers have established with Luka Doncic and Austin Reaves at the center of the offense?

“I’ve certainly thought about it,” Redick said about how James’ return will affect the team. “The reality is, next week will be a great week for all of us to assess where we’re at and figure out what we want to work on. It’s rare that you have one game over the course of a week, so probably will think about it more then. But typically when you’re playing every other day, you’re using your time until 3 a.m. to review the game that you just played and then using the time the next day until 3 a.m. to get ready for the next game.”

Last season, James averaged 24.4 points per game, 7.8 rebounds and 8.2 assists last season, while shooting 51.3% from the field and 37.6% from three-point range.

Lakers players don’t think James’ return will cause any issues.

Jarred Vanderbilt said James “can bring an element that we need, essentially, knowing that he can provide that.”

“I know it’s probably tough,” Vanderbilt said. “But even just the integration, trying to integrate himself as a player, as a team mid-season is kind of tough. But we’re excited for his return, whenever he comes back, and I know he can provide exactly what we need for this team.”

Reaves led the way against the Pelicans, finishing with 31 points and seven assists as the Lakers (9-4) improved to 2-0 in NBA Cup play.

Doncic scored 20 of his 24 points in the first half and finished with 12 assists and six rebounds.

Deandre Ayton was a force for the Lakers inside with 20 points and 16 rebounds. Trey Murphy III led the Pelicans (2-10) with 35 points and six rebounds.

Etc.

Lakers rookie Adou Thiero, who has been out all season recovering from left knee surgery, was activated, but did not play against Pelicans, but did not play. Redick said he hopes to potentially give Thiero some playing time against the Bucks.