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Will Halliburton’s Debt Load Decrease after Repayment?

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Will Halliburton’s Debt Load Decrease after Repayment? PART 1 OF 3

Will Halliburton’s Debt Load Decrease after Repayment?

Halliburton will repay debt

On February 14, 2017, Halliburton (HAL) disclosed that it will repay $1.4 billion of its long-term debt. The long-term notes were due to be repaid in September 2018 and September 2019. Halliburton will also pay a make-whole premium associated with the senior notes. It includes a lump-sum payment based on the net present value of future coupon payments on the notes. For a comparative analysis on Halliburton and its peers, read Energy’s Price Recovery Prompts an Oilfield Services Revival.

How will it impact Halliburton’s debt load?

After the redemption on March 15, 2017, Halliburton’s total debt will fall to $10.97 billion from ~$12.4 billion as of December 31, 2016. Halliburton’s net debt-to-adjusted trailing 12-month EBITDA (earnings before interest, tax, depreciation, and amortization) or indebtedness is also expected to improve. Halliburton’s indebtedness rose from 4Q15 through 4Q16. In 4Q16, Halliburton’s net debt-to-adjusted EBITDA multiple was ~3.7x or 238% higher than a year ago. It was higher mainly due to lower EBITDA from the weak energy market environment.

Will Halliburton’s Debt Load Decrease after Repayment?

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Net debt-to-adjusted EBITDA reflects how easily a company can repay its debts from its operational earnings and available cash. Halliburton accounts for 14.7% of the VanEck Vectors Oil Services ETF (OIH).

Where does net debt for Halliburton’s peers stand?

Net debt is aggregate short and long-term debt less cash and marketable securities. By the end of 4Q16, Schlumberger’s (SLB) net debt was ~$10.5 billion—compared to Halliburton’s net debt of ~$8.4 billion. Nabors Industries’ (NBR) net debt was ~$3.3 billion on September 30, 2016. To learn more, read What Analysts Expect from Nabors Industries’ 4Q16 Earnings.

Halliburton’s debt repayment

Halliburton has been repaying debt since 2016. During 2Q16, Halliburton redeemed $2.5 billion in debt in conjunction with the termination of the Baker Hughes (BHI) transaction. The transaction was terminated on April 1, 2016. In 3Q16, Halliburton repaid $600 million in debt that matured in August. As of December 31, 2016, Halliburton’s cash balance was $4.0 billion.

Next, we’ll discuss Halliburton’s returns compared to its peers and the industry.

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