Fitch Affirms Oracle's Ratings at 'A/F1' on Merger

NEW YORK--(Business Wire)--
Fitch Ratings has affirmed the ratings of Oracle Corporation (Nasdaq: ORCL)
(Oracle), following the announcement that Oracle will purchase Sun Microsystems
(Nasdaq: JAVA) (Sun; 'BBB-', Rating Watch Positive by Fitch). The ratings are
affirmed as follows:

--Issuer Default Rating (IDR) at 'A';

--Senior unsecured debt at 'A';

--Short-term IDR at 'F1';

--Commercial Paper (CP) at 'F1'.

The Rating Outlook is Stable.

The affirmation follows the announcement that Oracle will purchase Sun, for
approximately $8.7 billion, including $1.3 billion of assumed debt ($5.6 billion
net of cash and debt acquired). The Board of Directors of Sun has unanimously
approved the transaction, which is anticipated to close by the summer of 2009,
subject to Sun stockholder approval, certain regulatory approvals and customary
closing conditions.

The affirmation incorporates Fitch's expectations that Oracle will fund the
acquisition with a mixture of cash, CP borrowings and long-term debt issuance,
with the majority being funded with debt, given that most of the company's cash
is located outside the U.S. While credit protection measures are expected to
deteriorate as a result of this transaction, Fitch believes Oracle retains solid
financial flexibility at its current ratings, which incorporate total leverage
of approximately 1.5 times (x) given the company's current operating profile.
Fitch anticipates Oracle will continue to pursue an aggressive acquisition
strategy, which could temporarily drive leverage outside of expectations.
However, in line with past transactions, the company is expected to refrain from
meaningful share repurchases and use significant free cash flow to reduce debt
incurred in the transaction. Fitch believes that materially weaker credit
metrics over an extended period from a failed integration of Sun, a more
aggressive financial policy, or a significantly worse impact of the weak
macroeconomic environment, could result in negative ratings actions.

Concerns for the transaction center on greater integration risk associated with
Oracle's purchase of Sun due to Sun's sizable employee base (33,000 at year-end
2008) and broad and diverse product portfolio, including a significant hardware
segment. Additionally, uncertainty exists regarding potential segment/product
divestitures, management structure and product strategy, particularly regarding
open source software (e.g. MySQL). Positively, Fitch believes that Oracle can
achieve significant cost synergies, primarily general and administrative
expenses. Also, Oracle should be able to able to derive incremental benefits
from Sun's sizable customer base and large intellectual property portfolio (e.g.
Solaris and Java software platforms).

For the latest 12 months (LTM) ended Dec. 28, 2008, Sun generated total revenue,
operating EBITDA and free cash flow of $13.3 billion, $1 billion (7.7% margin)
and $8 million, respectively. Fitch estimates server systems, storage, software,
and services accounted for approximately 39%, 17%, 5% and 39% of Sun's total
revenue in the LTM period, respectively.

Pro forma for the recently initiated $1 billion dividend, Fitch estimates that
Oracle's free cash flow for the LTM ended Feb. 28, 2009 was $7 billion,
providing the company with significant financial flexibility for this
transaction. Fitch believes that cash restructuring payments associated with the
transaction and a pressured operating environment could have a slight impact on
free cash flow in subsequent years, although the cash generating capability of
the underlying business is expected to remain strong.

Oracle's credit metrics are expected to deteriorate upon the transactions close
as Fitch estimates leverage could increase to approximately 1.4x from 1.0x from
additional debt associated with the acquisition and interest coverage declining
to approximately 12x from 18x, assuming 100% of the transaction is debt
financed.

As of Feb. 28, 2009, Oracle's cash and cash equivalents were approximately $11.3
billion, of which approximately $10.1 billion was held by foreign subsidiaries.
In addition, Oracle has an undrawn $5 billion CP program backed by a $3 billion
revolving credit facility expiring March 2011, and a $2 billion 364-day facility
expiring March 2010 (which the company entered into upon expiration of the
previous $2 billion facility in March 2009).

Total debt as of Feb. 28, 2009 was approximately $11.2 billion and consisted
primarily of $1 billion of floating- rate senior notes due May 2009, $1 billion
of floating-rate senior notes due May 2010, $2.25 billion of 5% senior notes due
January 2011, $1.25 billion of 4.95% senior notes due April 2013, $2 billion of
5.25% senior notes due January 2016, $2.5 billion of 5.75% senior notes due
April 2018, and $1.25 billion of senior notes due April 2038.

Oracle Corporation's (Oracle) ratings and Stable Outlook reflect:

--Strong and consistent annual free cash flow in excess of $7 billion, driven by
the company's high customer retention rates and the resultant high-margin
recurring maintenance revenue stream;

--Strong competitive position as a result of expanded applications software
capabilities complementing dominant database market share;

--Established track record of integrating large acquisitions with minimal
operational or customer issues;

--The size and diversity of Oracle's installed base, as well as the barriers to
entry and 'switching' costs associated with the company's software.

Concerns center on aforementioned integration risk of Sun, and Fitch's
expectation that Oracle will continue to opportunistically pursue large
acquisitions along with significant share repurchase activity over the longer
term. Oracle repurchased $4.2 billion of stock during the 12 months ended Feb
28, 2009. There was approximately $6.5 billion available under the share
repurchase program at Feb. 28, 2009.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Melissa L. Link-Cohen, CFA, 212-908-0611
Nick P. Nilarp, CFA, 212-908-0649
Jason Pompeii, 312-368-3210, Chicago
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com

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