Oracle’s Cerner Purchase Prompts a Trio of Debt-Downgrade Warnings

Following the announcement of the $28.3 billion purchase of Cerner Monday, all three major U.S. ratings graders said they may downgrade Oracle if it increases leverage to carry out the transaction. S&P Global Ratings indicated the software company could be cut by as many as two notches to BBB-, adding that it’s likely to retain its investment-grade rating though some curtailment of share buybacks would probably be required.

At the same time, Fitch Ratings said the agreement “could result in the company deviating from its previous plan to reduce its debt,” as Oracle has repurchased $15 billion of its own shares in the first half of fiscal year 2021. Moody’s Investors Service also placed the company under review, noting that even prior to the acquisition, “Oracle did not have any publicly articulated medium or long-term financial policy goals.”

Despite having the second-largest debt load in the tech industry at almost $79 billion, according to Bloomberg estimates, the software provider said it “anticipates retaining an investment-grade credit rating” in the wake of the acquisition. Its long-term debt stands at more than $73 billion, data compiled by Bloomberg show.