Exclusive-Weinstein's Saba sells credit derivatives on Big Tech as AI risks grow, source says

By Nell Mackenzie and Lucy Raitano

LONDON (Reuters) -Boaz Weinstein's Saba Capital Management has sold recognition derivatives successful caller months to lenders seeking extortion connected large tech names similar Oracle and Microsoft owed to concerns implicit a debt-financed AI concern frenzy, a root told Reuters.​ Banks person sought to shield their vulnerability to imaginable losses by buying recognition default swaps (CDS) from the U.S. ‌hedge money manager, known for his winning stake against the JPMorgan Chase trader dubbed the "London Whale", the idiosyncratic said.

While the recognition security rises successful worth successful tandem with the perceived hazard of ‌a company's default, existent prices bespeak those risks are inactive debased compared to different sectors.

Saba sold banks CDSs connected Oracle, Microsoft, Meta, Amazon and Google genitor Alphabet, said the source, who had nonstop cognition of the deals.

Some ample plus managers, including a backstage recognition fund, were besides keen to bargain the product, the root said.

Microsoft declined to comment. Meta, Google, Amazon and Oracle did not instantly respond to requests for comment.

BANKS SEEK PROTECTION AS TECH FIRMS RACK UP DEBT

The ⁠development highlights a scramble to hedge against an detonation successful the ‌value of AI companies and their increasing indebtedness burdens. It besides points to fears that, if the existent AI enthusiasm proves to beryllium a bubble, immoderate popular would echo crossed equity markets arsenic a crisp correction, denting the economy.

The idiosyncratic said it was the ‍first clip Saba has sold hedging extortion connected immoderate of the companies and the archetypal clip banks had asked for this benignant of commercialized from the hedge fund.

The concern firms, the root said, were seeking extortion against the indebtedness accumulating connected companies' equilibrium sheets arsenic they get heavy to money their multi-billion-dollar AI projects.

Equity derivatives trading besides saw accrued lawsuit request ​for hedging extortion against the sector, a Goldman Sachs lawsuit enactment released connected Friday showed.

"Some of this is interest astir AI firm enslaved proviso implicit the ‌next fewer quarters aft a astonishment surge successful caller weeks," Deutsche Bank's Jim Reid said successful a enactment connected Monday speaking successful wide astir the tech-related CDS market.

"However, it seems that they are besides being utilized arsenic a wide hedge for each sorts of affirmative AI positions."

RISKS LOW COMPARED TO OTHER SECTORS DESPITE BUBBLE WORRIES

While yet CDSs are meant to wage compensation if a institution goes bust, the derivatives themselves turn successful worth arsenic the company's economical wellness declines.

Oracle and Alphabet CDSs are trading astatine their highest levels successful 2 years, portion information from S&P Global shows specified contracts for Meta and Microsoft person jumped successful caller weeks. Data ⁠for Meta CDSs was lone disposable from precocious October, according to S&P.