Hyperscaler Alert: Show me the money edition

“Nothing to see here… pay no attention to that negative cash flow behind the curtain.”

Enron imploded 25 years ago this year when the Raptor off-balance sheet SPEs failed and the company ran out of cash. The key driver to the Raptors’ failure was a cut in ENEs credit rating into junk level (below BBB-). Since Enron, companies have been discouraged from using credit ratings as conditions in SPE / SPV / VIE structures.

Discouraged, but not forbidden.

Oracle does not disclose the underlying SPV contracts themselves. Those private agreements are not filed with the SEC. Interestingly, ORCL has never explicitly stated that a drop in credit rating could not trigger the failure of their off-balance sheet SPV contracts. A simple confirmation on their part that none of their off-balance sheet contracts contain credit rating triggers could end all of this speculation.

I am not aware of any such confirmation. The silence is deafening.

On July 9 of this year, ORCLs’ credit rating dropped to BBB-, which is the last rate above junk.

A wise man said, History doesn’t repeat itself, but it rhymes.