SoftBank Issues Junk Bonds for OpenAI Investment

SoftBank Group has brought $10 billion and €1 billion of senior unsecured notes to market to fund its OpenAI investment. The dollar notes come in three tenors of three and a half, five and a half and seven and a half years, and the euro notes in two, of four and six years. Together they top $11 billion, which makes this one of the largest junk bond sales on record. According to reports, terms are due to be set on September 24 and the deal settles on September 29, with Citigroup and JPMorgan running the books.

Where the money goes is written into the term sheet. The first use is the $10 billion third tranche of the OpenAI follow-on investment closing on October 1, and the rest is general corporate purposes. The $10 billion bridge loan the company drew first is cancelled by these bonds. It is borrowed money swapped for borrowed money with a longer maturity, so this sale is not a decision to invest more but a decision to change how an existing promise gets paid.

The promise itself sits in a February 27 disclosure. That day SoftBank Group signed a definitive agreement with OpenAI Group PBC in the United States to make a $30 billion follow-on investment through SoftBank Vision Fund 2. Once the investment is complete, cumulative investment is expected to reach $64.6 billion for an ownership interest of about 13%, the company said. The pre-money valuation was set at $730 billion, and the securities acquired are preferred shares that convert automatically into common shares upon a listing or an equivalent transaction. The schedule put $10 billion in on each of April 1, July 1 and October 1, and these bonds fill the last slot.

Masayoshi Son, Chairman and Chief Executive Officer of SoftBank Group, said in that disclosure: "AI is transforming the world at an unprecedented pace. OpenAI is a clear leader, with world-class technology and an unparalleled global user base, and we have strong conviction in its continued growth." Sam Altman, Chief Executive Officer of OpenAI, said in the same release: "We continue to push the frontier across AI infrastructure, research, and products. SoftBank is the perfect long-term partner to help us maximize the benefits of AI for people at global scale."

A delegation clause in the paperwork explains the speed of this sale. The board resolved on February 20, and authority to settle the final terms and agreements passed to Yoshimitsu Goto, Board Director, Corporate Officer, Senior Vice President and Chief Financial Officer. The structure left the finance chief free to choose funding instruments within the bounds of that resolution, so the switch from bridge loan to bonds did not need a fresh board process.

The funding frame was already built on March 27. The bridge facility agreed that day carries a total of $40 billion, of which $30 billion has been drawn. On July 1 the company executed the second $10 billion tranche and borrowed $10 billion under the same facility that day, it disclosed. The plan written into the February filing ran exactly as described: fund first through bridge loans and financing from major financial institutions, then replace that over time with existing assets and other financing measures.

One large replacement has already happened. In a September 9 disclosure the company said it had decided to prepay on September 15 the entire outstanding balance of $25.9 billion under the bridge facility and had notified the lenders. In yen that is roughly ¥3,981.9 billion, converted at ¥153.74 to the dollar. In the SoftBank Group disclosure METAL read in full, that repayment is described as clearing the balance under the March facility in one move. Less than two weeks later the same company walked into the bond market with more than $11 billion.

The numbers behind the company's financial discipline are still in the February filing. SoftBank Group wrote that it manages loan-to-value below 25% under normal conditions with an upper threshold of 35% even in an emergency, and that it holds cash sufficient to cover at least two years of bond redemptions. It stated that the follow-on investment does not change that policy. That these notes are selling as high-yield paper says the policy and the market's read are not looking at the same place.

How it lands in the accounts also follows from the contract. The OpenAI shares are classified as financial assets measured at fair value through profit or loss, remeasured every quarter, with changes recognised as investment gains or losses in the consolidated income statement. Bond coupons go out as a fixed cost every period while the asset side moves quarter to quarter, so the more funding shifts into bonds, the more a fixed outflow and a floating valuation face each other on one balance sheet.

SoftBank Group has put $34.6 billion into OpenAI through Vision Fund 2 since September 2024. The $30 billion is being added on top of that, and these bonds are the source of the final $10 billion. METAL has reported that Nvidia invested $1.5 billion in a SoftBank-affiliated developer building OpenAI data centres, and has reported that spending on information-processing equipment in the United States has passed residential investment. The money behind that same build-out now runs through the bond market.

Three things are worth watching next. What coupon gets set on September 24, whether the third tranche closes on October 1 as planned, and how the valuation of preferred shares carrying a conversion clause moves in the quarterly accounts. Funding has shifted into bonds, and the repayment load is now spread from three and a half years out to seven and a half.