Oracle stepped back into the US high-grade market on Monday to raise US$25bn as part of a larger US$50bn debt and equity financing as the enterprise software company seeks to hold on to its investment-grade rating amid massive fundraising efforts to build out its AI business.
The Texas-based company's eight-part bond sale, with tenors ranging from three to 40 years, follows a rally in Oracle's bonds after the borrower laid out in detail its 2026 plans to fund the buildout of its cloud infrastructure to meet the demands of AI-driven clients.
The plan, about half of which is made up of common and preferred equity issuance, brought much-needed relief to creditors concerned that the company would lean heavily on debt to finance its AI ambitions, possibly threatening its high-grade status. (See story on the equity financing here.)
Against that backdrop, the company had little trouble placing the paper, with order books swelling to around US$125bn, according to one fixed-income investor.
“Everyone's pointing to the equity raise as being bondholder friendly,” said Matt Duch, chief investment officer at Channel Investment Partners. “Oracle said this should be the one deal they want to do and it should take them out for the year."
The detailed financing plan marks a shift for the Baa2/BBB/BBB rated Oracle, co-founded by billionaire Larry Ellison; the company's past reticence regarding financial policies has made bondholders somewhat wary of the credit.
"The big surprise that came out of the announcement was that they really established a capital allocation policy for their near-term capex spend," said a fixed-income investor.
"It is really a shift for a company that had no [public] financial policy to one that's saying, 'We very clearly want to be investment-grade and have a balanced approach between debt and equity.'"
Oracle did not immediately respond to a request for comment.
Boeing playbook
The fixed-income investor sees Oracle's jumbo equity sale as being in the same vein as Boeing's US$24.25bn equity and equity-linked offering in 2024, which reduced the aircraft maker's need to raise more debt and helped it fend off a demotion to junk territory.
"The playbook is the same here," the investor said. "They are bringing in equity to shore up the balance sheet in [a situation] that had been negative for creditors."
S&P said in a report on Monday that it viewed the funding mix positively and favored the company’s goal of maintaining its investment-grade rating.
Moody’s echoed those thoughts on Monday when its senior credit officer, Matthew Jones, noted that Oracle will have to fund a “meaningful proportion” of the buildout of its AI infrastructure business through equity if it wants to maintain its investment-grade status.
The bond deal marks Oracle’s second foray into the high-grade market in the past few months. In September, it raised US$18bn in a six-part issue only to see the bonds sell off despite initial optimism over high demand for its AI-related technology from the likes of OpenAI.
Investors’ concerns over growing financial risks at Oracle, whose balance sheet is much more debt-heavy than its tech peers', has resulted in a volatile few months for the company’s bonds.
The 5.2% 2035s, which were issued as part of the September deal, were initially priced at 99.985 for a US Treasury spread of 105bp. Since then, the bond has reached a wide of 175bp and a dollar price of 94.54 before snapping back to 123bp on Monday morning, according to MarketAxess data.
Paying up
HSBC, Bank of America, Citigroup, Deutsche Bank, Goldman Sachs and JP Morgan are active bookrunners on the latest bond deal.
“We suspect Oracle will need to offer some very generous spreads to get this deal done because of its size, the recent weakness in the trading levels of existing bonds, the poor performance of the stock, and the huge increase in debt, recently and prospectively,” said Dave Novosel, a senior bond analyst at Gimme Credit.
Indeed, bookrunners priced the deal at what were considered attractive spreads for the US$3bn of threes, US$3.5bn of fives, US$3bn of sevens, US$5bn of 10s, US$2.25bn of 20s, US$5bn of 30s and US$2.75bn of 40s. The tranches finished at plus 95bp, 115bp, 130bp, 145bp, 170bp, 180bp and 195bp, respectively. The company also printed a US$500m three-year floater at SOFR plus 111bp.
While Oracle managed to tighten pricing 30bp from the midpoints of initial price thoughts, the company landed the bonds some 40bp–58bp wider than its September deal. That deal comprised five, seven, 10, 20, 30 and 40-year tranches that priced at 75bp, 90bp, 105bp, 115bp, 125bp and 137bp, respectively.
"There is now some clarity for the downside risks," said a second bond investor. "It is unlikely they will go to low Triple B or come back to market anytime soon, so at this point we think these are pretty attractive spreads."
Even so, the company is not necessarily out of the woods yet. S&P said on Monday that the new funding mix is expected to result in leverage of mid 4x area for fiscal 2027, down from high 4x, but that level still remains above its 4x downgrade trigger, the agency said.