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By Matt Tracy<\/p>\n
Feb 13 (Reuters) – Alphabet Inc’s global bond sale this week underscored the high level of investor demand for the major AI hyperscalers, but raised concerns about the debt’s lack of \u200cprotections for existing and future bondholders.<\/p>\n
Google parent Alphabet raised $31.51 billion across U.S. dollar, sterling and Swiss franc \u200cbond markets in a global bond raise on Monday and Tuesday, as artificial intelligence-driven spending sparks a surge in borrowing at U.S. tech giants.<\/p>\n
Alphabet’s \u200bbond sale stood out in several ways, including its use of a so-called 100-year “century” bond in the sterling market.<\/p>\n
These and other hyperscalers’ recent bond sales have garnered strong reception with Alphabet’s $20 billion U.S. bond sale drawing over $100 billion in demand. But the growing hyperscaler debt pile has raised concerns about their lack of investor protections compared to other bonds.<\/p>\n
“What stands \u200cout is what\u2019s missing,” said Julia Khandoshko, \u2060the CEO of Cyprus-based broker Mind Money. “Once a big name gets covenant-light terms through, others will try the same.”<\/p>\n
“Naturally, that creates a second-market problem, where the next buyer has fewer ‘rules’ \u2060to rely on, while prices will swing more on rates, mood, and liquidity,” she added.<\/p>\n
Investment-grade borrowers with strong credit profiles typically include fewer covenants in debt agreements than their junk-rated counterparts.<\/p>\n
Yet most include basic investor guardrails, especially a standard change-in-control covenant protecting \u200binvestors \u200bin the event of M&A or another change in ownership. \u200bAlphabet’s bonds do not carry these protections, noted \u200cAnthony Canales, head of global research at New York-based Covenant Review.<\/p>\n
The five major AI hyperscalers – Amazon, Alphabet, Meta, Microsoft, and Oracle – issued $121 billion in U.S. corporate bonds last year, according to a January report by BofA Securities.<\/p>\n
Alphabet and Amazon did not respond to requests for comment, while Oracle, Meta and Microsoft declined to comment.<\/p>\n
Oracle’s $25 billion note offering on February 2, and Meta’s $30 billion bond offering in October, similarly lacked change-in-control and other basic covenants, Canales noted.<\/p>\n
“In most IG \u200ccovenant packages you would expect to see a change-in-control covenant,” Canales \u200bsaid. “But these are huge companies where the investors don’t believe there’s great \u200brisk they’ll need these protections.”<\/p>\n
Future tech issuers, especially \u200bsmaller and lower-rated companies, could run into obstacles if they attempt to model their covenants \u200cafter Alphabet, he added.<\/p>\n<\/p><\/div>\n
New debt issuance in 2026 \u200bfrom the five major hyperscalers \u200bcould reach more than $300 billion as their spending needs around AI buildout increase, BofA Securities analyst Tom Curcurro wrote in a January 12 report.<\/p>\n
“This massive AI infrastructure buildout requires so much capex from the hyperscalers \u200bthat they want to reduce the technical \u200cimpact on their bonds,” said Jordan Chalfin, senior analyst at the New York-based research firm CreditSights, \u200bnoting the benefits to issuers from flexible covenant structures.<\/p>\n
“I wouldn\u2019t expect there to be any real \u200bcovenant protections.”<\/p>\n
(Reporting by Matt Tracy in WashingtonEditing by Nick Zieminski)<\/p>\n<\/p><\/div>\n