Oracle Corporation Bonds: Too Much Good News from the Bond Market

In this note we analyze the current levels and past history of default probabilities for Oracle Corporation (ORCL), and we compare them to the credit spreads on secondary market trading in Oracle Corporation bonds on Friday, June 6, 2014. We compare our results to our earlier analysis of Oracle using data from July 12, 2013. Since our July 2013 report, Oracle CEO Larry Ellison engineered a miraculous come-back win in the America’s Cup yacht race. Just a year earlier, he bought theHawaiian island of Lanai in his spare time.

This would be more than enough for most CEOs, but, since our July report, Oracle’s financial strength has improved significantly in the eyes of financial markets. We review our findings in this report.

Conclusion: First, the default probabilities of the firm are low and they have become much stronger relative to peers since our July 2013 report. Second, traded credit spreads and matched-maturity default probabilities are very low compared to peers in technology, media and telecommunications and to the legacy investment grade peer group. We believe sophisticated analysts would be nearly unanimous in ranking Oracle Corporation as “investment grade” by the modern Dodd-Frank definition.


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