Will Moody's or S&P downgrade Oracle's credit rating below investment grade by December 2026?

Oracle requires a TWO-notch downgrade to fall below investment grade (from Baa2/BBB to below Baa3/BBB-). Multi-notch downgrades of large investment-grade issuers in a single action are extremely rare -- typically requiring acute liquidity crisis or fraud discovery. Rating agencies follow a sequential process: negative outlook -> one-notch downgrade -> further review. With no negative outlook currently in place, reaching junk by December 2026 would require an unusually accelerated timeline. Management has explicitly committed to maintaining IG status and demonstrated willingness to access capital markets ($25B bond offering). However, CDS >125bps at crisis-era levels and FCF collapsing from +$10.8B to projected -$30B signal genuine deterioration that could initiate the process.

The base rate for IG-to-junk transitions within a single calendar year is historically very low (<2% for Baa-rated issuers), but Oracle's situation has several features that elevate this above base rate. The $248B lease commitment treatment by rating agencies is a key uncertainty -- if agencies move toward treating these as debt-equivalent, leverage ratios deteriorate dramatically and could trigger an accelerated review. The cash runway of ~14 months (through April 2027) and annual mandatory outflows approaching $70B against $67B revenue create a structural vulnerability. However, the retained capital market access and management's defensive options (CapEx reduction, asset sales) are significant mitigants that would likely be deployed before a junk downgrade.

The resolution criteria is specifically below investment grade -- not merely a downgrade within IG. This requires breaching Baa3/BBB-, which is two notches below current Baa2/BBB. The mechanical process alone creates a high bar: rating agencies would first need to place Oracle on negative outlook, then execute a first downgrade (to Baa3/BBB-), then execute a second downgrade (to Ba1/BB+), all within ~10 months from now. The fastest path would be a multi-notch action triggered by a credit event, but Oracle's situation -- while strained -- is not acute. Revenue is still growing 13%, OCI is growing 66%, and the company just successfully raised $25B. The insider selling pattern and accounting questions from the Fugazi Filter add modest upward pressure, but not enough to overcome the procedural and structural barriers.

Oracle's credit metrics are deteriorating rapidly -- FCF from +$10.8B to -$30B in two years, mandatory outflows approaching revenue, CDS at crisis levels. The D.A. Davidson 'barely hanging on' quote and four-lens convergence on credit risk as a critical trigger elevate concern. However, the question requires below investment grade entirely, not just a one-notch downgrade. No negative outlook is currently in place, and rating agencies rarely execute multi-notch downgrades without a precipitating event (fraud, liquidity crisis, covenant breach). The ~10 month timeline is tight for the full sequence. I weight the OpenAI concentration risk as a plausible catalyst that could accelerate the timeline.

The structural analysis is clear: Oracle needs to drop two notches to resolve YES, rating agencies haven't even started the negative outlook process, and management has both commitment and demonstrated capability to defend IG status. The $25B bond offering is the strongest single data point -- it proves market willingness to lend at IG terms, which agencies heavily weight. The deterioration is real (FCF collapse, $70B mandatory outflows vs $67B revenue), but the question is whether it deteriorates fast enough to trigger TWO downgrades in 10 months. Historical data on Baa-rated large-cap tech companies transitioning to junk within a year is essentially zero absent fraud or acute crisis.

I'm weighting the tail risk scenarios more heavily. The prediction context identifies multiple plausible catalysts that could accelerate the timeline: OpenAI contract modification, additional financing partner withdrawal (Blue Owl was an early signal), CapEx guidance raise beyond $50B, and the $248B lease obligation reclassification risk. If two or more catalysts materialize simultaneously, rating agencies could act faster than historical norms. The Q2 FY26 anomalously low OCF of $2.1B, if it represents a new trend rather than a one-quarter anomaly, would rapidly erode interest coverage from the already-thin 4-5x level. The ACCOUNTING_INTEGRITY = CONCERNING signal from Fugazi Filter adds the possibility of undisclosed deterioration. However, even with elevated tail risk weighting, the mechanical barrier of two notches in 10 months keeps probability below 15%.

Oracle needs two downgrades to reach junk status. No negative outlook is in place. Rating agencies are slow-moving. Management committed to maintaining IG and raised $25B in bonds. However, CDS at crisis levels and FCF collapse signal genuine stress. The 10-month window is very tight for a two-step downgrade process. Probability is low but non-trivial given the severity of financial deterioration.

The base rate for Baa-rated companies falling to junk within one year is approximately 1-2%. Oracle's elevated risk factors (CDS, FCF collapse, leverage) may double or triple this, but the structural barriers remain strong: two notches required, no negative outlook started, $25B bond offering proves market access, and management has defensive options. Revenue is still growing. The most likely scenario is a negative outlook placement or at most a one-notch downgrade, not a fall to junk.

The financial trajectory is concerning -- $70B outflows vs $67B revenue, FCF collapse, CDS at 2009 levels. But the question is specifically about falling BELOW investment grade, not just a downgrade. The two-notch requirement and typical rating agency process (outlook change first, then one notch, then review) makes this very unlikely in 10 months. Oracle's continued capital market access is the key differentiator from companies that do get downgraded to junk quickly.