Halliburton Created Subsidiary To Boost Short-Term Liquidity
By ALEXEI BARRIONUEVO
Staff Reporter of THE WALL STREET JOURNAL
Faced with fewer short-term financing options, Halliburton Co. set up
an off-balance-sheet financing subsidiary in April to help it raise cash.
The move came amid worries about the Dallas oil-services company's
potential liability in asbestos lawsuits. Although the company has had
asbestos claims against it for some time, it acquired most of its growing
liability with its purchase of Dresser Industries Inc., which was
engineered in 1998 when Vice President Dick Cheney was at the
helm.
Late last year, after
Halliburton lost four large
asbestos verdicts,
credit-rating agencies cut
the company's investment rating, hampering its ability to get short-term capital at the lowest rates.
Doug Foshee, Halliburton's chief financial officer, said the move has helped increase the company's
short-term liquidity. "We were looking to replace what previously had been our access to the direct-paper
market with the lowest-cost financing available," he said.
Halliburton said it structured the entity as a "bankruptcy remote" subsidiary, meaning the assets can't be
touched if Halliburton were ever to seek bankruptcy-court protection. Although more than 50 companies
facing large asbestos liabilities have sought bankruptcy protection in recent years, Mr. Foshee said the
move was one of prudence and was "in no way" intended to raise the notion of a possible
bankruptcy-court filing.
Special-purpose entities have been set up by many big companies as a way to sell receivables for cash,
though they have come under scrutiny in recent months because of the way Enron Corp. used them to
hide debt and to benefit executives. Last year the funding of such receivables through special-purpose
entities was a $700 billion industry, said Bradley Schwartz, a managing director at J.P. Morgan Chase
& Co., which funded Halliburton's transaction.
"When they hit a bump in the road, companies are now looking to the asset-backed commercial-paper
market as a hedge against being shut out of the traditional commercial-paper market," Mr. Schwartz said.
The structure allows Halliburton to sell its receivables at a discount for cash, rather than waiting for them
to be paid. Shortly after it set up the entity in April, it sold $150 million in receivables to the funding
subsidiary. Mr. Foshee said the company expects to use the entity to raise short-term cash "for the
foreseeable future."
Arthur Simonson, a director in the utilities, energy and projects finance group at Standard & Poor's
Ratings Service, said companies sell their receivables frequently, some on a monthly basis. Halliburton
had $3.95 billion in receivables as of March 31.
Though the subsidiary is separate, the unit's books are reviewed by Halliburton's outside auditor, now
KPMG LLP. Halliburton replaced troubled Arthur Andersen LLP as its auditor in April.
In 4 p.m. New York Stock Exchange composite trading Thursday, Halliburton shares fell 14 cents to
$12.71.
Write to Alexei Barrionuevo at alexei.barrionuevo@wsj.com2 |
