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Rating Action:

Moody's downgrades Halliburton to Baa1 with negative outlook

03 Jun 2016

Approximately $12.8 billion rated debt affected

New York, June 03, 2016 -- Moody's Investors Service, ("Moody's") downgraded Halliburton Company's (HAL) senior unsecured debt rating to Baa1 from A2 and its short-term rating to P-2 from P-1, concluding a review for downgrade which was initiated October 27, 2015. The outlook is negative.

"Debt incurred to finance its failed bid to acquire Baker Hughes Incorporated (BHI) together with the negative impact on profitability and cash flow of the very weak oilfield services environment have eroded HAL's credit metrics to levels which no longer support its A2 rating," commented Andrew Brooks, Moody's Vice President. "Depending on the pace of a broader energy market recovery, HAL's debt leverage should peak in 2016, subsiding in subsequent years but is unlikely over the next several years to fall inside the 2.0x debt/EBITDA level that prevailed prior to 2015."

Downgrades:

..Issuer: Halliburton Company

.... Commercial Paper, Downgraded to P-2 from P-1

....Subordinate Shelf, Downgraded to (P)Baa2 from (P)A3

....Junior Subord. Shelf, Downgraded to (P)Baa2 from (P)A3

....Pref. Shelf, Downgraded to (P)Baa3 from (P)A3

....Senior Unsecured Shelf, Downgraded to (P)Baa1 from (P)A2

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa1 from (P)A2

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa1 from A2

..Issuer: Halliburton Company

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Halliburton Capital Trust I

....Pref. Stock Shelf, Downgraded to (P)Baa3 from (P)A3

Outlook Actions:

..Issuer: Halliburton Capital Trust I

....Outlook, Changed To No Outlook From Rating Under Review

RATINGS RATIONALE

HAL's downgrade to Baa1 reflects an anticipated significant increase in debt leverage to over 5x debt/EBITDA in 2016, a function of the combined impact of the additional debt incurred to finance its since-terminated acquisition of BHI and the severe downturn in the oilfield services market, which is likely to drive 2016's EBITDA down as much as 70% from 2014's record high. Persistently low oil and natural gas prices have prompted major cuts in upstream capital spending in 2016, following already substantial reductions in 2015. Depending on the pace of earnings recovery and EBITDA growth, Moody's sees HAL's debt leverage dropping towards 3.5x in 2017. The duration of the downturn in oilfield services demand and pace of the eventual recovery in HAL's earnings and cash flow is inherently uncertain. With improved debt/EBITDA metrics relatively more dependent on EBITDA growth than significant debt reduction, there is elevated execution risk in achieving these targets given the extent of overall market uncertainty.

Halliburton's Baa1 rating also reflects its leading market position and strong franchise value as the world's second largest oilfield services provider across many phases of the oil and gas production life cycle. While clearly not immune to the severe market downturn in oilfield services, HAL's size, scale, operational diversification and technology leadership give it the ability to weather the full extent of the downturn, emerging intact at the eventual recovery. That recovery, however, is likely to be uneven given HAL's considerable concentration in a severely depressed North American market that has been heavily pressured by the collapse in crude oil prices, chronically weak natural gas prices, reduced drilling activity and an over-supply condition and marginal returns in pressure pumping.

On November 16, 2014, Halliburton announced that it had reached an agreement to acquire BHI in a cash and stock transaction valued at the time at $34.6 billion. The transaction was approved by both companies' boards of directors, and received the approval of each companies' shareholders. The combination of the world's second and third largest oilfield service providers would have further fortified HAL's position as the world's second largest oilfield services provider, giving HAL an even larger platform from which to defend its market share in the global energy downturn and better capitalize on its eventual recovery. However, unable to obtain full antitrust approvals by the required April 30 merger date, HAL and BHI terminated their agreement, with HAL paying the $3.5 billion contractually agreed-upon termination fee to BHI shortly thereafter.

HAL maintains strong liquidity. Pro forma for the $3.5 billion BHI termination payment and the mandatory redemption of $2.5 billion of two tranches of notes issued in November 2015, HAL had a $3.6 billion cash balance at March 31. It is Moody's understanding that the company requires a cash balance of about $1.0 billion to fund current operations. HAL has full availability under its $3.0 billion revolving credit facility, which has a July 21, 2020 scheduled maturity, and there is no outstanding commercial paper under its commercial paper program, which is fully backed by the revolving credit facility. Its next upcoming scheduled debt maturity is $600 million of notes due in August 2016. HAL has consistently generated positive free cash flow, assisted by the significant flexibility it has under its capital spending needs. Notwithstanding 2016's severe downturn, a planned 60% reduction in the year's capital spending to $840 million will help HAL continue to generate positive free cash flow.

HAL's negative outlook reflects the uncertain pace of oilfield service recovery and the execution risk inherent in HAL's ability to grow EBITDA to the extent necessary to achieve a material deleveraging of its balance sheet from its currently elevated level. It is Moody's expectation that leverage will peak in 2016 and thereafter begin to evidence improvement, however, it is the pace of that improvement which is subject to market uncertainty and execution issues on the part of HAL. Ratings could be downgraded if debt/EBITDA does not decline towards 4.0x in 2017. A resumption of share repurchases, or a significant further deterioration in margins could result in a ratings downgrade. An upgrade, while unlikely in the near term, would be considered should HAL's debt/EBITDA approach 2.5x, while generating improved and consistent operating results leading to competitive metrics relative to its peers.

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

The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in December 2014. Please see the Ratings Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Andrew Brooks
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

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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 downgrades Halliburton to Baa1 with negative outlook
No Related Data.
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