Oracle Kicks Off Jumbo Bond Sale That Draws Two Downgrades

Oracle Corp. announced a jumbo bond sale Monday that drew downgrades from Fitch Ratings and Moody’s Investors Service.

While the proceeds of the offering will repay debt through next year, it’s a “deviation” from Fitch’s expectation that Oracle will reduce debt upon maturity, according to a statement Monday. It cut the rating one notch to BBB+, three steps above speculative grade. Moody’s downgraded two levels to Baa2, one notch lower than Fitch’s rating.

The company’s bonds were among the worst performers in the high-grade market Monday. The most actively-traded security, the 3.6% bonds due 2050, widened nearly 26 basis points to about 139 basis points over Treasuries, according to Trace. The new bonds due 2051 may price at a spread of around 165 basis points, according to a person with knowledge of the matter.

The downgrades “may raise new-issue concessions high enough to attract considerable demand,” Bloomberg Intelligence analysts Robert Schiffman and Suborna Panja said in a report. Its shares were little changed.

Oracle is targeting all of its $1.5 billion of notes due 2021, the $4.25 billion of 1.9% bonds due 2021 and another $2.5 billion due 2022, according to a filing. The proceeds may also be used for stock repurchases, dividends, repaying debt and future acquisitions, among other general corporate purposes.

The software company is selling bonds in six parts, and the longest, a 40-year security, may yield around 180 basis points above Treasuries, said the person, who asked not to be identified as the details are private. Bank of America Corp., Citigroup Inc., Deutsche Bank AG, JPMorgan Chase & Co. and Wells Fargo & Co. are managing the sale, per the filing.

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