Oracle Issues $3.25 Billion of Bonds to Pay Down Debt, Replenish Cash

Oracle Corp., the world’s second- largest software maker, sold $3.25 billion of bonds in two parts in its first offering in more than a year and the biggest debt sale by a nonfinancial borrower in 13 weeks.

The company’s $1 billion of 3.875 percent 10-year notes yield 85 basis points more than similar-maturity Treasuries, and its $2.25 billion of 5.375 percent 30-year bonds pay a 140 basis-point spread, according to data compiled by Bloomberg.

Oracle will apply proceeds to repay debt due in January 2011, to replenish cash used to pay debt that matured in May, and for general corporate purposes, according to a person familiar with the transaction, who declined to be identified citing lack of authorization to publicly comment on the sale.

The software maker, which has acquired 67 companies since the start of 2005, “views this as an advantageous time to lock in some long-term funding,” said Dave Novosel, an analyst with corporate bond research firm Gimme Credit.

“Oracle likes to keep a lot of cash on hand just in case there are opportunities in terms of acquisitions,” Novosel, based in Chicago, said in a telephone interview. “This gives them more flexibility in the capital structure, pushing debt further out.”

Sun Purchase

The company sold $4.5 billion of debt in June 2009 to help finance its acquisition of Sun Microsystems Inc., which was completed in January, according to data compiled by Bloomberg. The $7.3 billion purchase helped boost fourth-quarter profit at the company. Oracle, based in Redwood City, California, had $1 billion of floating-rate notes that matured in May and has $2.2 billion of debt coming due in January, according to a July 1 filing with the U.S. Securities and Exchange Commission.

Today’s offering is the biggest by a nonfinancial issuer in the U.S. corporate market since Telefonica SA, Europe’s second- largest phone company, issued $3.5 billion of debt in April through its financing affiliate, Bloomberg data show. Including financial issuance, the previous biggest offering was on July 7, when Kreditanstalt fuer Wiederaufbau, the German development bank, sold $5 billion of securities.

Deborah Hellinger and Karen Tillman, spokeswomen for Oracle, didn’t return phone calls and e-mails seeking comment on the offering.

Oracle issued $1.75 billion of 10-year notes last year that priced at 99.627 cents on the dollar to yield 5.052 percent, or a 155 basis-point spread, Bloomberg data show. The company sold $1.25 billion of 30-year bonds that priced at 99.334 cents on the dollar to yield 6.175 percent, or a 185 basis-point spread, the data show.

Outstanding Bonds Decline

The debt due in 2039 fell 3.53 cents to 112.082 cents on the dollar, raising its yield to 5.27 percent, or 123.6 basis points more than benchmarks, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The notes due in 2019 fell 0.41 cent on the dollar to yield 3.65 percent, a 58.1 basis-point spread, Trace data show.

The company sold more 30-year bonds than it has ever previously issued, Bloomberg data show.

As of May 31, $16.6 billion of Oracle’s more than $18 billion in cash and securities were held by foreign divisions, Standard & Poor’s said in a note today.

“Whatever their balance is, it’s not always readily available, because it’s tough to repatriate it from foreign countries sometimes because of tax consequences,” Novosel said. “That’s another reason they’d prefer to issue here.”

The notes are rated A by S&P, five levels below the top investment grade and may be given an equivalent A2 by Moody’s Investors Service, Bloomberg data show.

‘Financial Flexibility’

“Oracle has sufficient financial flexibility to fund ongoing acquisitions and share repurchases from cash on hand and available liquidity sources without materially weakening its financial profile,” S&P analysts wrote in the note.

JPMorgan Chase & Co., Bank of America Merrill Lynch and BNP Paribas managed the sale for the company, the person said.

Microsoft Corp., the world’s largest software maker, raised $1.15 billion of interest-free financing from its first sale of convertible bonds last month, Bloomberg data show. A basis point is 0.01 percentage point.

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net.

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