SoftBank's Cost of Default Insurance Hits a Four-Year High as AI Sell-Off Spreads

SoftBank's five-year credit default swap spread rose 17.4 basis points to 462 basis points, the widest since October 2022, according to Markit data cited by Reuters. Another reading in Reuters' coverage put the increase at 22 basis points, to 466. SoftBank's shares fell more than 11% on the day and have roughly halved since early September, Reuters reported.

The move matters because SoftBank has become one of the most leveraged bets on the AI build-out, and credit investors are now charging more to hold that risk. The group has invested $64.6 billion in OpenAI, owns about 90% of chip designer Arm and finances data centres through SB Energy. It has borrowed at record yields to fund its OpenAI stake, and the prospect of a return on that investment has moved further out after OpenAI pushed its own public listing to 2027, according to Reuters.

The spread has been widening for weeks. On October 20 it stood at 432 basis points, then the highest since early November 2022, Bloomberg reported at the time, after rising more than 30 basis points in a week. Bloomberg linked that earlier move to financial strain at the US cloud provider CoreWeave and to SoftBank's possible acquisition of the security services company Allied Universal.

Sharon Chen, a credit analyst at Bloomberg Intelligence, estimated then that SoftBank faces at least $6 billion of cash outflow in the year ending March 2027, with further AI investments adding to its funding needs. She said the company "would need to raise fresh funds" for the Allied Universal deal and that its loan-to-value ratio could move toward its self-imposed ceiling of 25%.

Pressure on the data centre business adds to the strain. The planned listing of SB Energy, at a potential valuation of $50 billion, has reportedly slipped to December or later, Reuters said, and the unit's filing shows it has no data centres in operation yet and depends heavily on OpenAI.

Friday's selling followed Democratic gains in the US midterm elections, which investors have read as a threat to the pace of AI infrastructure construction. One analyst cited by Reuters estimated that a third of US data centre capacity could be at risk because planned sites sit in states whose governors may slow development. Japan's Nikkei entered a bear market on Friday, with SoftBank among the biggest decliners.

Not everyone expects the slide to continue. Amir Anvarzadeh, a strategist at Asymmetric Advisors, told Reuters that equity markets are "finally pricing in a slowdown" in data centre development, but said he believes the near-term bottom has been reached.

A credit default swap measures what investors pay to protect against a default; it is not a sign that one is imminent. The next markers for SoftBank are the timing of the SB Energy listing and whether it raises new money for the Allied Universal acquisition.