Oracle Corp.

The negative outlook reflects our view that given the lack of clear financial policy guidance from management, the current pace of share repurchases could continue through fiscal 2021, and that adjusted leverage could exceed 2x as a result. We could lower our issuer credit rating on Oracle if its adjusted leverage exceeds 2x over the next two years as it engages in large share repurchases. A debt-funded acquisition that pushes leverage over the same level would also be a cause for a downgrade. We would consider revising the outlook to stable if Oracle's adjusted leverage settles at comfortably less than 2x and we believe that it can be sustained there. Global GDP growth in the low-3% area in 2020 and

...Oracle Corp.'s adjusted leverage continues to climb as it engages in large share repurchases.Oracle Corp. has significantly ramped up shareholder returns since the passage of the U.S. tax reform in late 2017, with share repurchases totaling $36 billion in fiscal 2019 (ending in May), albeit declining to a pace of $5 billion per quarter for the current fiscal year. This still outstrips annual cash flow ranging from $12 billion-$13 billion annually. Although it has repaid maturing debt during this period, net debt stands at $24 billion as of November 2019, up from a net cash position of $7 billion the end of fiscal 2018. Under our base-case scenario, which assumes share repurchases of around $20 billion per year through fiscal 2021, we estimate that Oracle's adjusted leverage could exceed our downgrade threshold of 2x over the next several quarters, which the company could mitigate by adjusting share repurchases. Oracle's strength in database is a key credit support. Oracle has a leading...

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