Welcome!

News Feed Item

Fitch Affirms Oracle at 'A+' & Rates Sr. Note Offering 'A+'; Outlook Stable

Fitch Ratings has affirmed the ratings of Oracle Corp. (Oracle) at 'A+', including the long-term Issuer Default Rating (IDR). The affirmation follows the company's announcement that it will access the debt capital markets. The net proceeds of the proposed offering will be used for general corporate purposes, including stock repurchases, dividends, future acquisitions, including Oracle's pending acquisition of MICROS Systems, Inc. (MICROS; expected to close in the second half of 2014), and repayment of debt (including the 3.75% senior notes due July 2014; $1.5 billion principal amount outstanding).

Furthermore, Fitch has assigned an 'A+' rating to Oracle's proposed issuance of senior unsecured notes. The Rating Outlook is Stable. A full list of ratings follows at the end of this press release.

The rating actions affect approximately $27 billion of total debt, including the company's undrawn $3 billion unsecured revolving credit facility (RCF).

KEY RATING DRIVERS

The Ratings and Outlook reflect:

--Significant financial flexibility, with cash and investments totaling $38.8 billion as of May 31, 2014 ($35.2 billion offshore), an undrawn $3 billion RCF due 2018 and sustained annual free cash flow (FCF) after dividends in excess of $11 billion in the past three fiscal years (FYs). Oracle reported FCF of $12.2 billion in FY 2014 (May 31), in-line with Fitch's expectations.

--Strong customer attach-and-renewal rates for software maintenance, resulting in a steadily increasing, highly profitable (93% gross margin) recurring revenue stream that significantly reduces FCF volatility. Despite flat new license revenue, software maintenance grew 6.2% and accounted for nearly 48% of total revenue in FY 14.

--Strong competitive position, especially in database and middleware software.

--Conservative financial policies and strong credit protection metrics.

--Size and diversity with respect to its installed software base and significant switching costs associated with mission-critical enterprise software.

--Established track record of integrating acquisitions.

Fitch's rating concerns are:

--Competition from open-source software and long-term profitability of Oracle's SaaS and PaaS offerings (cloud subscriptions) relative to traditional on-premise software.

The direct controllable profit on new software licenses and cloud subscriptions, excluding stock-based compensation, declined 8% to $3.7 billion in fiscal 2014. The decline reflects: i) a revenue mix shift toward cloud subscriptions and associated delay in revenue recognition compared with a traditional license; and ii) a 500 basis points decline in the controllable gross margin for cloud subscriptions to 60.2% due to incremental expenses to support cloud subscription growth.

Fitch believes Oracle has and will continue to make significant investments, both organic and inorganic, to retain its long-term competitiveness relative to other cloud subscription providers. Oracle's cloud subscription revenue was $1.1 billion in fiscal 2014, or more than 10%, of aggregate revenue from new licenses and cloud subscriptions.

--Aggressive acquisition strategy; however, Fitch expects the company will remain disciplined with its strategy and, in the event of a major debt-financed acquisition, will reduce leverage using FCF in lieu of meaningful share repurchases.

--Material and sustained growth in cash returned to shareholders via stock repurchases and dividends since fiscal 2012 as well as U.S. acquisitions increase Oracle's external U.S. funding requirements due to significant offshore cash and FCF generation that is subject to incremental taxation upon repatriation. As of May 31, 2014, $35.2 billion, or 91%, of Oracle's total cash and investments of $38.8 billion was held by foreign subsidiaries.

RATING SENSITIVITIES

Positive:

Fitch believes the company's lack of a strategic rationale to maintain a higher rating at the expense of financial flexibility required for acquisitions limits further positive rating actions.

Negative:

--Fitch believes Oracle currently has the financial flexibility to issue up to $10 billion in incremental debt at the 'A+' rating. Debt issuance in excess of $10 billion or deterioration in financial performance would result in negative rating actions.

--Inability to adapt to major technology transitions, such as SaaS, PaaS or any emerging database technologies.

Fitch believes Oracle's liquidity is strong even after discounting the offshore cash for incremental taxes payable upon repatriation. The significant $35.2 billion of offshore cash reflects a considerable portion of FCF being derived outside the U.S., while significant U.S. funding is required for share repurchases, acquisitions and dividends.

Fitch estimates pro forma leverage (debt/operating EBITDA) of 1.5x as of May 31, 2014 compared with 1.3x, assuming Oracle issues $5 billion of debt to fund the pending acquisition of MICROS.

As of May 31, 2014, total debt was $24.2 billion and consisted primarily of:

--$1.5 billion of 3.75% senior notes due July 2014;

--$2 billion of 5.25% senior notes due January 2016;

--$2.5 billion of 1.20% senior notes due October 2017;

--$2.5 billion of 5.75% senior notes due April 2018;

--$500 million of floating rate senior notes due January 2019;

--$1.5 billion of 2.375% senior notes due January 2019;

--$1.75 billion of 5% senior notes due July 2019;

--$1 billion of 3.875% senior notes due July 2020;

--$1.62 billion of 2.25% senior notes due January 2021;

--$2.5 billion of 2.50% senior notes due October 2022;

--$1 billion of 3.625% senior notes due July 2023;

--$975 million of 3.125% senior notes due July 2025;

--$1.25 billion of 6.50% senior notes due April 2038;

--$1.25 billion of 6.125% senior notes due July 2039;

--$2.23 billion of 5.375% senior notes due July 2040.

Fitch affirms Oracle's ratings as follows:

--Long-term IDR at 'A+';

--Revolving credit facility at 'A+';

--Senior unsecured debt at 'A+';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

Additional information is available 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=837154

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
SYS-CON Events announced today the Kubernetes and Google Container Engine Workshop, being held November 3, 2016, in conjunction with @DevOpsSummit at 19th Cloud Expo at the Santa Clara Convention Center in Santa Clara, CA. This workshop led by Sebastian Scheele introduces participants to Kubernetes and Google Container Engine (GKE). Through a combination of instructor-led presentations, demonstrations, and hands-on labs, students learn the key concepts and practices for deploying and maintainin...
Cognitive Computing is becoming the foundation for a new generation of solutions that have the potential to transform business. Unlike traditional approaches to building solutions, a cognitive computing approach allows the data to help determine the way applications are designed. This contrasts with conventional software development that begins with defining logic based on the current way a business operates. In her session at 18th Cloud Expo, Judith S. Hurwitz, President and CEO of Hurwitz & ...
SYS-CON Events announced today that Tintri Inc., a leading producer of VM-aware storage (VAS) for virtualization and cloud environments, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Tintri VM-aware storage is the simplest for virtualized applications and cloud. Organizations including GE, Toyota, United Healthcare, NASA and 6 of the Fortune 15 have said “No to LUNs.” With Tintri they mana...
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life sett...
Fifty billion connected devices and still no winning protocols standards. HTTP, WebSockets, MQTT, and CoAP seem to be leading in the IoT protocol race at the moment but many more protocols are getting introduced on a regular basis. Each protocol has its pros and cons depending on the nature of the communications. Does there really need to be only one protocol to rule them all? Of course not. In his session at @ThingsExpo, Chris Matthieu, co-founder and CTO of Octoblu, walk you through how Oct...
Fact is, enterprises have significant legacy voice infrastructure that’s costly to replace with pure IP solutions. How can we bring this analog infrastructure into our shiny new cloud applications? There are proven methods to bind both legacy voice applications and traditional PSTN audio into cloud-based applications and services at a carrier scale. Some of the most successful implementations leverage WebRTC, WebSockets, SIP and other open source technologies. In his session at @ThingsExpo, Da...
SYS-CON Events announced today that ReadyTalk, a leading provider of online conferencing and webinar services, has been named Vendor Presentation Sponsor at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. ReadyTalk delivers audio and web conferencing services that inspire collaboration and enable the Future of Work for today’s increasingly digital and mobile workforce. By combining intuitive, innovative tec...
Major trends and emerging technologies – from virtual reality and IoT, to Big Data and algorithms – are helping organizations innovate in the digital era. However, to create real business value, IT must think beyond the ‘what’ of digital transformation to the ‘how’ to harness emerging trends, innovation and disruption. Architecture is the key that underpins and ties all these efforts together. In the digital age, it’s important to invest in architecture, extend the enterprise footprint to the cl...
Vidyo, Inc., has joined the Alliance for Open Media. The Alliance for Open Media is a non-profit organization working to define and develop media technologies that address the need for an open standard for video compression and delivery over the web. As a member of the Alliance, Vidyo will collaborate with industry leaders in pursuit of an open and royalty-free AOMedia Video codec, AV1. Vidyo’s contributions to the organization will bring to bear its long history of expertise in codec technolo...
SYS-CON Events announced today that Secure Channels will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. The bedrock of Secure Channels Technology is a uniquely modified and enhanced process based on superencipherment. Superencipherment is the process of encrypting an already encrypted message one or more times, either using the same or a different algorithm.
SYS-CON Events announced today that Bsquare has been named “Silver Sponsor” of SYS-CON's @ThingsExpo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. For more than two decades, Bsquare has helped its customers extract business value from a broad array of physical assets by making them intelligent, connecting them, and using the data they generate to optimize business processes.
Traditional on-premises data centers have long been the domain of modern data platforms like Apache Hadoop, meaning companies who build their business on public cloud were challenged to run Big Data processing and analytics at scale. But recent advancements in Hadoop performance, security, and most importantly cloud-native integrations, are giving organizations the ability to truly gain value from all their data. In his session at 19th Cloud Expo, David Tishgart, Director of Product Marketing ...
Digitization is driving a fundamental change in society that is transforming the way businesses work with their customers, their supply chains and their people. Digital transformation leverages DevOps best practices, such as Agile Parallel Development, Continuous Delivery and Agile Operations to capitalize on opportunities and create competitive differentiation in the application economy. However, information security has been notably absent from the DevOps movement. Speed doesn’t have to negat...
If you’re responsible for an application that depends on the data or functionality of various IoT endpoints – either sensors or devices – your brand reputation depends on the security, reliability, and compliance of its many integrated parts. If your application fails to deliver the expected business results, your customers and partners won't care if that failure stems from the code you developed or from a component that you integrated. What can you do to ensure that the endpoints work as expect...
The Transparent Cloud-computing Consortium (abbreviation: T-Cloud Consortium) will conduct research activities into changes in the computing model as a result of collaboration between "device" and "cloud" and the creation of new value and markets through organic data processing High speed and high quality networks, and dramatic improvements in computer processing capabilities, have greatly changed the nature of applications and made the storing and processing of data on the network commonplace.