Fitch Revises Halliburton's Rating Outlook to Positive.
--Issuer Default Rating (IDR) at 'BBB+';
--Senior unsecured notes/debentures at 'BBB+';
--Senior unsecured bank facility at 'BBB+';
--Commercial paper ratings at 'F2'.
The Positive Rating Outlook reflects Halliburton's recent IPO of a 19% stake in KBR Inc. (KBR) and the planned divestment of Halliburton's remaining ownership in KBR during the first half of 2007. Fitch views the divestment of KBR positively despite the fact that Halliburton is expected to retain certain liabilities associated with the KBR business. Retained liabilities are expected to include guarantees for existing letters of credit and existing performance guarantees supporting current KBR projects.
Halliburton is also expected to retain liabilities associated with the Barracuda-Caratinga project as well as any indemnification for any liabilities associated with the Foreign Corrupt Practices Act (FCPA) investigation at KBR. Halliburton and Petrobras achieved final acceptance of the Barracuda-Caratinga project in April 2006, limiting any future liabilities to the subsea bolt issue which is expected to enter arbitration in early 2008 with Petrobras claiming damages of $220 million plus interest. Retained liabilities associated with FCPA investigations are related to the Bonny Island project in Nigeria. Halliburton will indemnify KBR for any monetary penalties or fines, including disgorgement, related to the investigation. The ultimate size of the liabilities, the period of time which they are expected to persist, and expectations for actual cash obligations associated with the retained liabilities will be important for future rating actions.
As of Sept. 30, 2006, Halliburton's credit metrics reflected the significant improvements the company has made as well as the increased demand for the its products and services. Adjusted debt-to-EBITDAR was 2.1 times (x) compared to 2.6x at year-end 2005. Interest coverage, as measured by EBITDAR to gross interest plus rents, was 4.8x compared to 4.0x at year-end 2005. In addition, the company generated free cash flow of $2.6 billion (cash from operations less capital expenditures less dividends) during the latest 12 months (LTM) ending Sept. 30, 2006, despite $457 million being used for working capital requirements.
Halliburton's current ratings reflect its leading position in the energy services sector, the company's geographic and operational diversification, and the robust credit profile and liquidity of the company. Offsetting risk factors include the potential for weaker market conditions associated with Halliburton's North American ESG business, the significant level of off-balance-sheet obligations (leases, retained KBR liabilties, and potential obligations under the convertible bond debenture), increased shareholder-friendly actions including the dividend and $2 billion of availability under the existing share-repurchase program, increased capital expenditures, and an expected increase in future acquisition expenditures.
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|Date:||Jan 8, 2007|
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