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Could Helmerich & Payne’s Debt Be Reassuring?

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Helmerich & Payne’s net debt-to-EBITDA

Helmerich & Payne’s (HP) net debt to trailing-12-month EBITDA (earnings before interest, tax, depreciation, and amortization) was negative in fiscal 4Q15 due to negative net debt. In fiscal 4Q15, HP’s net debt-to-EBITDA multiple was -0.18x. It was unchanged over fiscal 4Q14.

Net debt-to-EBITDA reflects how easily a company can repay its debts from its operational earnings and available cash. HP’s peer Oceaneering International’s (OII) net debt-to-EBITDA was 0.73x at the end of fiscal 3Q15. OII’s long-term debt by the end of fiscal 3Q15 was $797 million, compared to HP’s $492 million in fiscal 4Q15.

HP makes up only 0.03% of the SPDR S&P 500 ETF (SPY), but for investors who would like energy exposure, energy makes up 6.5% of SPY.

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Helmerich & Payne’s debt

In the past 11 quarters, HP’s net debt to trailing-12-month EBITDA ratio turned negative in fiscal 3Q13 from a positive multiple in fiscal 2Q13. It stayed negative until fiscal 4Q15. From fiscal 2Q13 until fiscal 4Q15, HP’s total debt more than doubled.

In fiscal 2015, HP issued $500 million in new debt in anticipation of expenditures associated with its rig construction program. From fiscal 2Q13 to fiscal 4Q15, the company’s cash and marketable securities exceeded its total debt. This led to negative net debt.

Also during this period, HP’s cash and marketable securities increased four-fold. Its trailing-12-month EBITDA fell 6.7% from fiscal 2Q13 until fiscal 4Q15. HP’s strong cash position relative to its total debt provides sufficient liquidity to take on additional debt when required.

Next, we’ll discuss Helmerich & Payne’s free cash flows.

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