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Rating Action:

Moody's changes Halliburton's outlook to negative

Global Credit Research - 26 Jul 2013

Approximately $4.8 billion of rated long-term debt securities affected

New York, July 26, 2013 -- Moody's Investors Service affirmed Halliburton Company's (Halliburton) A2 long-term debt and Prime-1 (P-1) commercial paper ratings and changed the rating outlook to negative from stable. This rating action follows Halliburton's announcement that it will commence a modified Dutch auction to tender for up to $3.3 billion shares of common stock.

"The negative outlook reflects Halliburton's more aggressive financial posture evidenced by debt funded common stock repurchase activity and a higher anticipated leverage profile," stated Michael Somogyi, Moody's Vice President -- Senior Analyst. "While the company has made progress in defining its liability exposure related to Macondo, there is still uncertainty surrounding the settlement of private claims stemming from the Macondo multi-district litigation."

Following a Board approved increase to Halliburton's share repurchase authorization to $5 billion, the company announced they will commence a modified Dutch auction to tender for up to $3.3 billion shares of common stock with the auction price ranging between $42.50 - $48.50 per share. At a mid-point price of $45.50 per share, and accounting for the repurchase of 23 million shares during the quarter ended June 30, 2013 for approximately $1 billion cash, this tender offer effectively targets to repurchase 10% of Halliburton's outstanding shares. The tender offer is scheduled to expire on August 22, 2013.

Issuer: Halliburton Company

..Outlook Actions:

.Outlook, Changed to Negative from Stable

..Rating Affirmation:

.Senior Unsecured Regular Bond/Debenture, affirmed A2

.Senior Unsecured Commercial Paper, affirmed P-1

.Senior unsecured MTN Shelf, affirmed (P)A2

.Senior Unsecured Shelf, affirmed (P)A2

.Senior Subordinated Shelf, affirmed (P)A3

.Junior Subordinated Shelf, affirmed (P)A3

.Preferred Shelf, affirmed (P) A3

RATINGS RATIONALE

As of June 30, 2013, Halliburton had a cash and marketable securities balance of $1.7 billion and $4.8 billion of rated long-term debt securities. Including $4.25 billion for capitalized lease obligations (Moody's standard adjustment), Halliburton's adjusted debt balance stood at about $9.1 billion. Moody's expects the company to enter into one or more new debt financing arrangements to fund a substantial portion of the aggregate purchase price resulting in an elevated leverage profile.

Historically, the company has repurchased stock to offset dilution for stock issued in smaller acquisitions, but it had pulled back from repurchases since mid-2008 in response to the industry downturn and uncertainty regarding potential Macondo liabilites. During 1Q2013, Halliburton announced a 39% increase to its annual dividend and the commencement of stock repurchases under its prior $1.7 billion share repurchase authorization.

Moody's views the company's increased share repurchase activity as a more aggressive given the inherent cyclicality of its earnings and in consideration of the lack of certainty around its ultimate Macondo liability. The company targets total debt/capitalization (not including Moody's standard adjustments) in the mid 25%-30% range over a full business cycle. With the increased debt to fund the share repurchase, Moody's expects Halliburton's debt/capital ratio to rise meaningfully above its internal target range through 2014 and for Moody's adjusted debt / EBITDA leverage ratio to rise well above the 1.5x level for the twelve month period ending March 31, 2013.

Halliburton continues to defend its position as a service provider fully indemnified under its service contract with BP. However, it had indicated that the evolving Multi-District Litigation (MDL) and other related lawsuits and investigations could result in further financial charges. The company booked an additional $1.0 billion pre-tax charge ($637mm AT) in 1Q2013 to increase its contingency reserve related to Macondo to $1.3 billion on a pre-tax basis. While Moody's views the agreement with the US Department of Justice (DOJ) as constructive, both in terms of the $200,000 fine and bringing about a conclusion to the department's criminal investigation, private claims under the MDL remain unresolved.

Returning the outlook to stable will be contingent on management's financial policies going forward with respect to financial leverage and share repurchases, and the ability to reduce leverage metrics through earnings growth. Additional debt funded share repurchases or acquisitions and/or a significant deterioration in earnings could result in a ratings downgrade. Debt/EBITDA sustained above 2.5x in cyclically weak earnings environment would pressure the ratings. An upgrade for Halliburton is unlikely to occur in the near-term. However, improved and consistent operating results leading to competitive metrics relative to its peers, significantly reduced financial leverage, and greater clarity on legal contingencies, could lead to an upgrade.

Halliburton Company, headquartered in Houston, Texas, is a leading provider of services and products in the energy industry related to the exploration, development and production of oil and natural gas.

The principal methodology used in this rating was Global Oilfield Services Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael Somogyi
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Halliburton's outlook to negative
No Related Data.

 

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