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We’re already seeing financial institutions start to get cold feet, as they either pull back from funding deals (Blue Owl), or buy instruments - selling risk on their debts - to protect themselves against any possible failure (Deutsche Bank, Morgan Stanley).

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A few weeks ago, the Financial Times reported that Blue Owl Capital had pulled out of the $10 billion Michigan Stargate Data Center project, citing “concerns about its rising debt and artificial intelligence spending.” To quote the FT, “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.” What debt, you ask? Well, Blue Owl — formerly the loosest legs in data center financing — was in CoreWeave’s $600 million and $750 million debt deals for its planned Virginia data center with Chirisa Technology Parks, as well as a $4 billion CoreWeave data center project in Lancaster, Pennsylvania, Stargate Abilene and Stargate Mexico, Meta’s $30 billion Hyperion data center, and a $1.3 billion data center deal in Australia through Stack Infrastructure, a company it owns through its acquisition of IPI Partners. To be clear, Blue Owl “pulling out” is not the same as a regular deal. It’s a BDC — Business Development Corporation — that invests both its own money and rallies together various banks, in this case SMBC, BNP Paribas, MUFG and Goldman Sachs (all part of Stargate New Mexico). 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. Blue Owl is incredibly well-connected and experienced in putting together these kinds of deals, and very likely went to the many banks it’s worked with over the years, who apparently had “concerns about its rising debt,” much of it issued by them! While rumours suggest that Blackstone may “step in,” the banks that will actually back a $10 billion deal are fairly narrow, and “stepping in” would require billions of dollars and legal logistics. In November, the FT reported that Deutsche Bank — which backed CoreWeave multiple times and several data centers — was “exploring ways to hedge its exposure to data centers after extending billions of dollars in debt,” including shorting a “basket of AI-related stocks” or buying default protection on some of its debt using synthetic risk transfers, which are when a bank sells the full or partial credit risk of a loan (or loans) to another bank while keeping the loans on their book, paying a monthly fee to investors (this is a simplification). In December, Fortune reported that Morgan Stanley (CoreWeave three times, IPI Partners, Hyperion, SoftBank Bridge Loan) was also considering synthetic risk transfers on “loans to businesses involved in AI infrastructure.” Back in April, SMBC sold synthetic risk transfers tied to “private debt BDCs” — and while this predates the large data center deals done by Blue Owl, SMBC has overseen multiple Blue Owl deals in the past. In December, SMBC closed another SRT, selling off risk from “Australian and Asian project finance loans,” though I can’t confirm if any of them were data center related. In December, Goldman Sachs paused a planned mortgage-bond sale for data center operator CyrusOne, with the intent to revive it in the first quarter of 2026. Oracle’s credit risk reached a 16-year high in the middle of December, with credit default swaps (basically, betting that Oracle will default on its debts, an unlikely yet no-longer-impossible event) climbing to their highest price since the great financial crisis. While Morgan Stanley and Deutsche Bank’s SRTs are yet to close, it’s still notable that two of the largest players in data center financing feel the need to hedge their bets. So, what exactly are they hedging against? Simple! That tenants won’t arrive and debts won’t get paid.
December 29, 2025 at 5:32 PM