McDermott boasts 'outstanding' balance sheet with little debt

By Paul Deckelman

New York, Dec. 7 - McDermott International, Inc. has an "outstanding" balance sheet, its chief financial officer declared Wednesday, with little debt and most of its borrowing capacity available under an amended, extended and enlarged revolving credit facility that the company entered into earlier this year.

"The balance sheet is extremely strong, an excellent balance sheet," Perry L. Elders told investors at the Capital One Southcoast Sixth Annual Energy Conference in New Orleans on Wednesday.

Not much debt

He said McDermott - a Houston-based company that constructs and installs offshore oil and gas drilling platforms and pipelines in the Gulf of Mexico and other energy drilling regions around the world - has "a virtually unlevered balance sheet" featuring "a significant revolver that goes out for five years." He said all of that capacity was available for possible use, except for amounts outstanding under letters of credit.

Despite having total assets of $2.7 billion, the company had relatively low total debt of just $89.1 million on the balance sheet at the end of the third quarter on Sept, 30. This took the form of $45.5 million of notes payable to finance its North Ocean 102 pipeline construction support vessel and another $43.6 million of financing for a second such ship, the North Ocean 105. The company meanwhile had $618.8 million of cash, restricted cash and investments at the quarter's end.

McDermott had $700 million of cash, restricted cash and investments at the end of the second quarter on June 30, with total debt at that time of $81.9 million, and had $886.5 million of cash, restricted cash and investments and $55.3 million of total debt at the end of 2010.

Improved revolver terms

In August, McDermott and its lenders entered into an agreement to extend, amend and enlarge the revolving credit facility the company had entered into in May 2010. The revolver was increased to $950 million from $900 million, and its expiration was extended to August 2016 from the original expiration date in May 2014.

The interest rate was reduced to between 150 and 250 basis points over Libor from 250 to 350 bps over Libor originally. The commitment fee on unused portions of the credit facility was lowered to between 20 and 45 bps, based upon the company's ratings, from between 37.5 and 62.5 bps before.

The amendment also relaxed some financial covenants. Permitted capital expenditures were increased, allowing McDermott to incur unsecured debt so long as the company is in pro forma compliance with a maximum 2.75-to-1 leverage ratio, which replaced a pre-existing limit of $400 million on unsecured debt, and the maximum permitted leverage ratio was increased to 3 times from 2.5 times originally.

McDermott also gained the ability to use the net proceeds from the issuance of debt - other than loans under the credit agreement - to make investments in joint ventures and subsidiaries that are not guarantors under the agreement, and it gained the ability to sell certain vessels and other assets while substantially eliminating the annual limit on asset sales. Some of the company's assets were also released from the liens securing the credit facility.

As of the end of the third quarter, the company had no borrowings under the facility, other than $304.9 million of outstanding letters of credit, and it had $645.1 million available for borrowing.

Elders said that the company's operating margins are strong, it deploys its capital in a disciplined manner - "we're not spending money willy-nilly," he asserted - and with its official incorporation as a Panamanian entity, it has "a great tax structure."

With an already large backlog of orders at its six drilling rig construction bases around the globe, one in southern Louisiana and the rest overseas, and with energy exploration booming around the world - 95% of the company's revenues are derived from operations outside the United States - Elders proclaimed that McDermott is "poised to take advantage of an extremely robust and strong market."

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