>3. if they get classified as junk, any pension portfolios holding Oracle stock must sell as they can't hold junk stocks.

Wouldn't hedge funds or PE recognize this arbitrage opportunity and eat this up, making this a non-issue? Vastly simplifying this: suppose "junk bond" means the chance of default is greater or equal to 10%. Of course it's bad if the risk of oracle going bankrupt edges up from 9% to 10.1%, but we shouldn't expect pandemonium from the 10% cliff edge, because there's plenty to be made by selling all the bonds that pension funds are obligated to sell, because now they have higher yields (yields move inverse to bond prices).

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dofm 4 hours ago | parent | next [-]

Why aren't the PE firms buying this debt right now though, before Oracle is downgraded? Isn't that a better purchase?

(Sincere, not rhetorical questions)

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gruez 4 hours ago | parent | next [-]

Because assuming the premise is true, there will be a dip in bond prices (ie. higher yields) when oracle gets downgraded, because pension funds or whatever have to dump their holdings. You buy the dip, not at the top.

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cmiles8 4 hours ago | parent | prev [-]

Because the general consensus at this point appears to be that the notes will fail. You wouldn’t buy a loan if you thought it wasn’t going to be repaid.

	▲	stockresearcher 3 hours ago \| parent [-]
		> You wouldn’t buy a loan if you thought it wasn’t going to be repaid. Eh, people do weird things all the time. Also, there is often extreme information asymmetry.

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to11mtm 4 hours ago | parent | prev [-]

Ehhhh?

I guess, maybe, but perhaps the risk that GP is commenting on is that it could be it's own form of Juicing.

I do sincerely doubt, even with the big shifts that AI enables to have companies 'move away' from Oracle, that Oracle will default.

On the other hand, There's still an elevated chance of decline.

IOW, Those stocks might move from pension type plans to different baskets as a result, however there is a non-negligible risk of some (not total!) loss in the 5-10 year term.

Will add, I would -hope- that the same pension rules around selling questionable stocks, would also have rules limiting what level of exploitation is possible.