Oracle’s default insurance hits high-yield levels as AI debt mounts
How close Oracle sits to junk
S&P Global Ratings cut Oracle to BBB- from BBB on July 9, the lowest investment-grade rung. The outlook is stable. S&P forecast a fiscal 2027 free operating cash flow deficit of nearly $42 billion, up from its earlier forecast of about $24 billion, and adjusted leverage in the mid-4x range.
The agency said it could cut the rating again if it expects leverage to stay above 4.5x, if Oracle does not look on track for positive free operating cash flow by fiscal 2029, or if it takes a negative view of Oracle’s AI strategy or the broader industry. CNBC cited a 4x leverage trigger.
Moody’s Ratings affirmed its Baa2 rating on Oracle in September while keeping a negative outlook. That sits one notch above the bottom of Moody’s investment-grade scale.
The pressure comes from the size of the buildout. Oracle is working on a $300 billion deal with OpenAI, and CNBC cited FactSet data showing the company has issued $118 billion in long-term debt and carries another $39 billion in capital and lease obligations. Analysts expect free cash flow of negative $36 billion in 2027, according to consensus forecasts cited by CNBC. A second CNBC report put Oracle’s net debt at about $132 billion.
Deutsche Bank’s Jim Reid called Oracle an AI bellwether and warned that a junk rating could pressure investment-grade-only investors into forced selling, CNBC reported. Mandates that limit holdings to investment-grade debt would have to sell if a downgrade crossed the line.
