McDermott International Files For Bankruptcy: What To Expect
Zacks Investment Research | Jan 21, 2020 08:47PM ET
McDermott International, Inc. (NYSE:MDR) filed for protection under Chapter 11 of the U.S. Bankruptcy Code at Houston court on Jan 21.
This Texas-based fully vertically integrated player providing engineering and construction solutions to energy firms plans to restructure its operations with the help of its creditors.
McDermott with projected liabilities in the $1-$10 billion bracket will be cushioned by the two-third majority of its funding creditors who would help reduce more than $4.6 billion of its debt burden by equitizing the same. The company struggled with ballooning debt, primarily incurred from the $3.5-billion acquisition of Chicago Bridge & Iron Company in 2018.
This reorganization along with the cash generated from operations will aid the company to clear wages and return to its normal day-to-day activities. Further, this strategic action will allow the company to control its cash flows, improve its balance sheet, stabilize its trade debt and strengthen its position in the long run.
With all the restructuring transaction along with securing committed exit financing of approximately $2.4 billion McDermott hopes to get bailed out of bankruptcy with a debt load of about $500 million.
For a while now, McDermott had been considering the sale of its industry-leading Lummus Technology business after piquing prospective buyers’ interest. The company finally reached a definitive agreement via a partnership deal with The Chatterjee Group and Rhône Group (the Joint Partnership) to divest Lummus Technology for 2.73 billion.
Financial Terms of the Transaction
Pursuant to Section 363 of the Bankruptcy Code, McDermott will conduct a court-supervised auction and sell-off process wherein the "Joint Partnership" will serve as the "stalking horse bidder.”
This strategic move might brace this heavily leveraged company to better its financial condition by utilizing the proceeds from the sale of Lummus Technology for repaying the debtor-in-possession (DIP) financing in full and funding emergence costs plus providing cash to the balance sheet for long-term liquidity.
However, the "Joint Partnership’s" bid is subject to higher or more lucrative offers as other involved parties can also grab an opportunity to submit competing bids. If the proposal meets with success, McDermott will have the choice to procure 10% common equity interest in the entity acquiring Lummus Technology.
McDermott Stock Down a Whopping 92% in a Year
McDermott’s share price movement has been weak, both in absolute and relative terms. This oilfield equipment provider has plunged 91.7% in a year’s time, much wider than the Original post
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