Following the failed merger of Baker Hughes and Halliburton, Moody’s has made the decision to downgrade both companies’ credit ratings. Halliburton and Baker Hughes had their senior unsecured debt downgraded from A2 to Baa1.
Halliburton announced that they planned to acquire Baker Hughes back in November of 2014, and HAL, therefore, took on much debt in order to finance the acquisition. Moody’s Vice President, Andrew Brooks, stated that “Debt incurred to finance its failed bid to acquire Baker Hughes Incorporated 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.”
The merger failed after numerous international governmental agencies identified issues with particular details of the merger. The U.S. Justice Department went so far as to file a lawsuit to deter the potential merger. Halliburton had to pay $3.5 billion to BHI after the failed merger, which BHI plans to use to buy back stock and rid itself of debt.
The downgrade is a representation of the lingering low oil price that has been harming many oil companies’ operations. The price of oil recently reached $50, indicating that the market is starting to rebalance.
Article written by HEI contributor Timothy McNally.