SoftBank launches one of biggest junk bond deals to fund OpenAI bet

SoftBank is seeking to borrow more than $11bn in what would be one of the largest high-yield bond deals ever sold to investors, as Masayoshi Son’s tech giant looks to fund its multibillion investment in OpenAI.

The Japanese company is marketing $10bn and €1bn of bonds to credit investors, as part of a deal that will fund the third tranche of an investment in OpenAI expected to close next month, according to terms shown to investors. The bonds are expected to be priced on Thursday.

SoftBank’s latest transaction adds to a debt pile already amassed by one of the world’s largest investors in AI, which has borrowed billions of dollars to fuel bets on OpenAI and the wider AI boom.

The deal adds to a flood of bond issuance by Big Tech groups this year that has pushed the limits of corporate credit markets, but which has mostly been confined to safer investment-grade debt.

SoftBank earlier this year struck an agreement to borrow up to $40bn in bridge loans from lenders including Japanese bank Mizuho to fund investments in OpenAI. Its investments were to be made in three instalments in April, July and October.

The deal was an indication that SoftBank was ready to push up against self-determined borrowing guardrails to back the sector. The group has said that it aims to keep its loan-to-value ratio below 25 per cent in normal conditions, a limit that it told the FT could be breached temporarily in the future.

Earlier this month SoftBank said it would repay the $25.9bn outstanding balance on the bridge loans on September 15 and refinance the deal with longer-term debt. The group told investors that the third investment tranche in OpenAI due to close in October — set to be funded by the bond deal — would come alongside the cancellation of the remaining $10bn in spare capacity under its bridge loan agreement.

OpenAI expects to burn through almost $280bn by the end of 2030 as it invests aggressively to expand its access to computing power, and is asking investors to buy into its aggressive spending plans, the FT reported.

Its ability to secure funding is critical to a network of agreements the company has struck with other tech groups, including chipmaker Nvidia and Oracle. SoftBank’s data centre business is also dependent on contracts with OpenAI for its future revenues.

In January OpenAI and SoftBank announced that they had agreed to invest $1bn in SB Energy, an infrastructure company part-owned by the Japanese conglomerate, in a further deal to help fuel the AI start-up’s build-out of data centres.

The dollar portion of SoftBank’s bond deal will be spread across three maturities, while the euro portion is to be spread across two maturities. Lenders including Citibank, Goldman Sachs and JPMorgan are marketing the deal.