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A further downgrade could force some investors to sell Oracle’s debt and raise its borrowing costs. The company expects AI projects to generate strong cash flows once operating.
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Oracle’s credit risk is becoming a constraint on the financing behind its AI expansion: its five-year credit-default-swap spread reached 295 basis points, while its BBB- rating is already at the bottom of investment grade. A move to junk could trigger forced selling by some investors and raise borrowing costs just as Oracle funds data centers and cloud capacity, including a reported $300 billion OpenAI deal. The practical test is whether new infrastructure produces enough cash flow to meet rating-agency expectations; Oracle and some investors say the projects need time to ramp.
Oracle had $118 billion in long-term debt and $39 billion in capital and lease obligations, according to FactSet data cited by CNBC.
Consensus forecasts cited by CNBC project negative free cash flow of $23.7 billion this year and $36 billion in 2027.
S&P’s July downgrade cited three possible further-cut triggers: sustained leverage above four times, no path to positive free operating cash flow by fiscal 2029, or a negative view of Oracle’s AI strategy or the industry.
Oracle told CNBC that maintaining its investment-grade rating is its first priority as investors demand more protection against a default. The company remains at the lowest investment-grade level. But a further downgrade could force some investors to sell its debt and make financing its AI infrastructure buildout more expensive, according to investors interviewed for CNBC’s October 19 report.
Oracle’s five-year credit-default-swap spread stood at 295 basis points after briefly touching 300 on Thursday, up 287% over one year. These contracts protect buyers against a borrower’s failure to repay. Wider spreads mean more expensive protection and higher perceived credit risk—not a new ratings decision.
Oracle is pushing beyond enterprise software into data centers and cloud services, including a $300 billion deal with OpenAI. FactSet data cited by CNBC put its long-term debt at $118 billion, with another $39 billion in capital and lease obligations.
Consensus forecasts cited by CNBC project negative free cash flow of $23.7 billion this year and $36 billion in 2027. S&P cut Oracle’s rating in July to BBB-, citing rising credit risk from its fast-growing infrastructure business and an expectation of weaker operating cash flow in 2027.
In its July downgrade, S&P identified three possible triggers for another cut, according to CNBC:
A downgrade into junk territory could pressure investors restricted to investment-grade debt into forced sales, Deutsche Bank’s Jim Reid warned. Jamie Meyers, a senior securities analyst at Oracle shareholder Laffer Tengler, said it would also likely increase borrowing rates and push Oracle toward shorter-term funding.
The AI infrastructure business has strong economic returns and we expect it will produce strong free cash flows once projects are ramped
Oracle, in a statement to CNBC
Meyers is not concerned about Oracle’s debt levels. His case rests on revenue and earnings growing as projects come online: the company needs time to finish building the capacity.
Vanguard fixed income portfolio manager Brad Collins also expressed confidence. He said closer scrutiny had made Oracle more diligent in its debt issuance this year. He described major cloud companies’ balance sheets as starting from a healthy position and cautioned against extrapolating high-yield debt stress to investment-grade borrowers.
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