S&P: Salesforce. com Inc. Assigned 'A-' Issuer Credit Rating; Outlook Stable; Unsecured Notes And Term Loan Rated 'A-'

S&P Global Ratings today assigned its 'A-' issuer credit rating to San Francisco-based Salesforce. com Inc. The outlook is stable.

We also assigned our 'A-' issue-level rating to the company's proposed senior unsecured notes and existing $500 million term loan.

Our rating on Salesforce reflects the company's leadership position in the fast growing customer relationship management (CRM) software industry; strong, consistent track record of revenue growth due to the recurring nature of its subscription business model; and good cash flow metrics characteristic of the SaaS industry. Partial offsets include strong competition from established technology firms with significant financial resources that are looking to expand their cloud offerings; lower profit margin than that of similarly rated peers, as the company continues to spend heavily on sales and marketing to drive revenue growth; and somewhat aggressive acquisition strategy that we believe could lead to credit metrics exceeding our expectations. The acquisition of Mulesoft Inc., a provider of application integration and application program interface (API) management, will raise pro forma S&P Global Ratings-adjusted leverage to about mid-1.0x. However, we believe the company can deleverage to about 0.5x over the next two years if it does not pursue large acquisitions given our expectation for continued strong operating performance.

The stable outlook on Salesforce reflects our expectation for consistent revenue and cash flow expansion supported by its SaaS business model and market share expansion, as well as our view that the company will be committed to a strong investment-grade profile as it pursues acquisition opportunities.

We would consider an upgrade if Salesforce improves its overall business profile by increasing its business diversity within the CRM vertical through revenue and margin expansion while maintaining a conservative financial policy.

Although we do not expect it over the next two years given the pending acquisition of Mulesoft, we would consider a lower rating if Salesforce engages in a large debt-funded acquisition that elevates adjusted leverage above 2x on a sustained basis.
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