SoftBank is taking on some expensive debt to fund its OpenAI investment.
The company has issued $10 billion of USD senior notes across three tranches, with coupons ranging from 8.625% to 9.75%.
The proceeds are being raised as SoftBank funds its investment in OpenAI.
But those coupon rates create another interesting number:
How much does it actually cost to borrow $10 billion at these rates?
Nearly $1 billion a year in interest
The smallest tranche is $1 billion at 8.625%, producing roughly $86.3 million in annual interest.
The other two are much larger.
SoftBank is borrowing $4.5 billion at 9.25%, costing approximately $416.3 million per year.
Another $4.5 billion at 9.75% adds approximately $438.8 million.
Combined, that's an annual coupon bill of roughly:
$941 million per year.
That's before considering refinancing, taxes or any other financing costs.
The longer-term number is even larger
The bonds mature over different periods, from 3.5 to 7.5 years.
If each tranche remains outstanding until maturity and SoftBank makes every scheduled coupon payment, the approximate interest paid across the three bonds comes to $5.88 billion.
That's on top of repaying the original $10 billion principal.
It means the headline $10 billion financing comes with nearly $6 billion of coupon payments over the life of the bonds.
Why the hurdle is so high
This doesn't mean OpenAI needs to generate $941 million for SoftBank every year. The financing sits within SoftBank's broader capital structure, and the economics of its OpenAI investment are separate from the bond cash flows.
But it does show the cost of the capital being raised.
A 9%+ coupon is very different from financing an investment with cheap debt.
On the $10 billion USD issuance alone, SoftBank is committing to almost $1 billion of annual interest payments.
The takeaway
SoftBank's OpenAI bet is enormous, but so is the financing bill behind it.
$10 billion borrowed.
$941 million in annual coupon payments.
Approximately $5.88 billion in coupon interest if the bonds are held to maturity.
The investment doesn't just have to be large to matter. The capital being used to fund it is expensive too.
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