SoftBank Default Insurance Hits Highest Level Since 2023 as OpenAI Commitment Reaches $64.6 Billion

SoftBank Group is paying up to borrow, and the market that insures its debt is flashing a warning.

Five-year credit default swaps on SoftBank have climbed to roughly 380 to 400-plus basis points. That is the highest since 2023. Insuring SoftBank debt against default now costs about 4% of the protected amount every year.

The OpenAI bet

On Oct. 1, SoftBank completed the third and final $10 billion tranche of a $30 billion follow-on investment in OpenAI, made through Vision Fund 2. The schedule was $10 billion in April, $10 billion in July and $10 billion in October.

SoftBank says its cumulative OpenAI investment is now $64.6 billion, good for roughly a 13% stake. OpenAI is private, so that stake is valued by funding rounds, not a daily share price.

The company had planned to bridge the commitment with loans and replace them with longer-term funding. On Sept. 24 it sold a record $11.1 billion in high-yield bonds. Dollar notes carried coupons of 8.625%, 9.25% and 9.75%.

OpenAI is not the only check SoftBank is writing. The company has also committed $5.4 billion to ABB's robotics business and $3.1 billion to DigitalBridge, tied to data center ambitions.

Credit ratings

On Sept. 11, Fitch assigned SoftBank its first-ever rating, BB+ with a stable outlook. That is one notch below investment grade. Fitch flagged risks linked to the company's OpenAI exposure.

S&P has kept a negative outlook. A downgrade is a live possibility.

Concentration is the core issue. CreditSights estimates Arm Holdings and OpenAI together make up roughly three-quarters of SoftBank's asset value. Arm is listed and carries a visible price. OpenAI is not.

Stocks and credit are telling different stories

SoftBank shares posted their first monthly gain in four months in September, rising 24% over four weeks. Bloomberg reported that OpenAI's new GPT-6 Astra model revived optimism, and that OpenAI's plan to raise $30 billion at a $1.4 trillion valuation gave investors a fresh reference point for SoftBank's stake. A rebound in Arm shares helped too.

Equity bulls have a straightforward argument. Masayoshi Son has described his approach to OpenAI as going "all in," and supporters see an interconnected stack spanning chips, data centers, models and robotics. If AI becomes industrial infrastructure, they argue, $64.6 billion looks like an entry price. A higher Arm share price also raises SoftBank's reported net asset value and the collateral available to borrow against.

Credit investors are asking a different question: what happens if private valuations and future cash flows fail to cover financing that now costs close to 10%. Crypto Briefing's tally shows SoftBank shares still down about 38% from a June peak despite the autumn rally.

The pricing gap is stark. Similar SoftBank dollar bonds issued in 2021 carried yields of roughly 2.125% to 5.25%, according to figures cited in a moomoo analysis.

A rough week for AI financing

SoftBank's debt costs are rising against a market that turned on debt-fueled AI spending last week. The Nasdaq Composite fell 2.14% on Friday and roughly 4.5% for the week, its worst since June. The S&P 500 lost almost 2% for the week. Both indexes hit record highs about 10 days earlier, according to CNN.

CoreWeave, the Nvidia-backed AI cloud provider with tens of billions in debt, lost about a quarter of its value for the week. Gil Luria, head of technology research at D.A. Davidson, called such companies "the subprime tranche of the AI trade." He also said he believes AI demand is real and growing.

A semiconductor index fell 3.8% Friday, its eighth straight daily loss, and dropped 11.4% on the week.

The pressure is coming from rates. Hotter-than-expected inflation data pushed the 10-year Treasury yield above 5.30% on Wednesday, and Brent crude touched $110 a barrel Friday for the first time since May. Skyler Weinand, chief investment officer at Regan Capital, told The Epoch Times he expects the Federal Reserve to pause in October, then begin raising rates in December and continue through June 2027.

Higher rates hit a leveraged borrower like SoftBank twice. They raise the cost of new debt, and they pressure the valuations of the AI assets backing it. Bloomberg also noted that Oracle shares sold off after the company cited force majeure to shield itself from surging data center expenses.

What to watch

SoftBank's equity rally rests on OpenAI's proposed $30 billion raise at a $1.4 trillion valuation, which is a plan, not a closed round. S&P has not changed its negative outlook, and the Fed's rate path is unsettled. Whether the credit market's 4% price tag proves right or wrong now hinges on those three things.