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
Apache Hadoop is emerging as a distributed platform for handling large and fast incoming streams of data. Predictive maintenance, supply chain optimization, and Internet-of-Things analysis are examples where Hadoop provides the scalable storage, processing, and analytics platform to gain meaningful insights from granular data that is typically only valuable from a large-scale, aggregate view. One architecture useful for capturing and analyzing streaming data is the Lambda Architecture, represent...
As organizations realize the scope of the Internet of Things, gaining key insights from Big Data, through the use of advanced analytics, becomes crucial. However, IoT also creates the need for petabyte scale storage of data from millions of devices. A new type of Storage is required which seamlessly integrates robust data analytics with massive scale. These storage systems will act as “smart systems” provide in-place analytics that speed discovery and enable businesses to quickly derive meaningf...
Your homes and cars can be automated and self-serviced. Why can't your storage? From simply asking questions to analyze and troubleshoot your infrastructure, to provisioning storage with snapshots, recovery and replication, your wildest sci-fi dream has come true. In his session at @DevOpsSummit at 20th Cloud Expo, Dan Florea, Director of Product Management at Tintri, will provide a ChatOps demo where you can talk to your storage and manage it from anywhere, through Slack and similar services ...
SYS-CON Events announced today that Ocean9will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Ocean9 provides cloud services for Backup, Disaster Recovery (DRaaS) and instant Innovation, and redefines enterprise infrastructure with its cloud native subscription offerings for mission critical SAP workloads.
The taxi industry never saw Uber coming. Startups are a threat to incumbents like never before, and a major enabler for startups is that they are instantly “cloud ready.” If innovation moves at the pace of IT, then your company is in trouble. Why? Because your data center will not keep up with frenetic pace AWS, Microsoft and Google are rolling out new capabilities In his session at 20th Cloud Expo, Don Browning, VP of Cloud Architecture at Turner, will posit that disruption is inevitable for c...
Building a cross-cloud operational model can be a daunting task. Per-cloud silos are not the answer, but neither is a fully generic abstraction plane that strips out capabilities unique to a particular provider. In his session at 20th Cloud Expo, Chris Wolf, VP & Chief Technology Officer, Global Field & Industry at VMware, will discuss how successful organizations approach cloud operations and management, with insights into where operations should be centralized and when it’s best to decentraliz...
Providing the needed data for application development and testing is a huge headache for most organizations. The problems are often the same across companies - speed, quality, cost, and control. Provisioning data can take days or weeks, every time a refresh is required. Using dummy data leads to quality problems. Creating physical copies of large data sets and sending them to distributed teams of developers eats up expensive storage and bandwidth resources. And, all of these copies proliferating...
DevOps is often described as a combination of technology and culture. Without both, DevOps isn't complete. However, applying the culture to outdated technology is a recipe for disaster; as response times grow and connections between teams are delayed by technology, the culture will die. A Nutanix Enterprise Cloud has many benefits that provide the needed base for a true DevOps paradigm. In his Day 3 Keynote at 20th Cloud Expo, Chris Brown, a Solutions Marketing Manager at Nutanix, will explore t...
DevOps has often been described in terms of CAMS: Culture, Automation, Measuring, Sharing. While we’ve seen a lot of focus on the “A” and even on the “M”, there are very few examples of why the “C" is equally important in the DevOps equation. In her session at @DevOps Summit, Lori MacVittie, of F5 Networks, explored HTTP/1 and HTTP/2 along with Microservices to illustrate why a collaborative culture between Dev, Ops, and the Network is critical to ensuring success.
Interoute has announced the integration of its Global Cloud Infrastructure platform with Rancher Labs’ container management platform, Rancher. This approach enables enterprises to accelerate their digital transformation and infrastructure investments. Matthew Finnie, Interoute CTO commented “Enterprises developing and building apps in the cloud and those on a path to Digital Transformation need Digital ICT Infrastructure that allows them to build, test and deploy faster than ever before. The int...
SYS-CON Events announced today that SoftLayer, an IBM Company, has been named “Gold Sponsor” of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2016, at the Javits Center in New York, New York. SoftLayer, an IBM Company, provides cloud infrastructure as a service from a growing number of data centers and network points of presence around the world. SoftLayer’s customers range from Web startups to global enterprises.
SYS-CON Events announced today that Conference Guru has been named “Media Sponsor” of SYS-CON's 20th International Cloud Expo, which will take place on June 6–8, 2017, at the Javits Center in New York City, NY. A valuable conference experience generates new contacts, sales leads, potential strategic partners and potential investors; helps gather competitive intelligence and even provides inspiration for new products and services. Conference Guru works with conference organizers to pass great dea...
SYS-CON Events announced today that Technologic Systems Inc., an embedded systems solutions company, will exhibit at SYS-CON's @ThingsExpo, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. Technologic Systems is an embedded systems company with headquarters in Fountain Hills, Arizona. They have been in business for 32 years, helping more than 8,000 OEM customers and building over a hundred COTS products that have never been discontinued. Technologic Systems’ pr...
SYS-CON Events announced today that CA Technologies has been named “Platinum Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY, and the 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. CA Technologies helps customers succeed in a future where every business – from apparel to energy – is being rewritten by software. From ...
With major technology companies and startups seriously embracing Cloud strategies, now is the perfect time to attend @CloudExpo | @ThingsExpo, June 6-8, 2017, at the Javits Center in New York City, NY and October 31 - November 2, 2017, Santa Clara Convention Center, CA. Learn what is going on, contribute to the discussions, and ensure that your enterprise is on the right path to Digital Transformation.