McDermott to file bankruptcy; deal cuts debt by over $4.6 billion

By Caroline Salls

Pittsburgh, Jan. 21 – McDermott International Inc. announced Tuesday that it has the support of more than two-thirds of all its funded debt creditors for a restructuring transaction that will equitize nearly all its funded debt, eliminating over $4.6 billion of debt.

According to a company news release, the restructuring transaction will be implemented through a pre-packaged Chapter 11 bankruptcy case that was expected to be filed later on Tuesday in the U.S. Bankruptcy Court for the Southern District of Texas.

Financing details

McDermott said the Chapter 11 proceedings will be financed by a debtor-in-possession financing facility of $2.81 billion. Subject to court approval, the company said it expects the DIP financing, combined with cash generated by McDermott, to enable it to stabilize its cash flows, continue operating in the normal course and fulfill its commitments to key stakeholders, including customers, suppliers, joint-venture partners, business partners and employees.

Credit Agricole CIB will act as DIP letter-of-credit facility agent, and Barclays Bank plc as DIP term loan agent.

The DIP financing will mature nine months after the bankruptcy filing date, subject to a 90-day extension under specified circumstances.

Interest will accrue at a rate of Libor plus 900 basis points.

The company said it has also secured committed exit financing of more than $2.4 billion in letter-of-credit facility capacity and will emerge from Chapter 11 with roughly $500 million in funded debt.

According to an 8-K filed with the Securities and Exchange Commission, the company’s exit financing will include a super senior exit facility comprised of a $743 million letter-of-credit facility, a term loan facility in an amount of any portion of the make-whole amount outstanding at emergence, an up to $1.236 billion senior secured letter-of-credit exit facility for new letters of credit, a letter-of-credit exit facility reflecting existing letters of credit a term loan in an amount of $500 million of take-back debt and an up to $371 million cash secured letter-of-credit exit facility.

The restructuring transaction will strengthen the company’s balance sheet, normalize its trade debt and position it for long-term growth, the release said.

All of McDermott’s businesses are expected to continue to operate as normal for the duration of the restructuring, and all customer projects are expected to continue uninterrupted on a global basis.

Pre-packaged plan

McDermott said it began solicitations of votes from its lenders and bondholders Tuesday morning on a pre-packaged Chapter 11 plan of reorganization.

In addition, the company said support from all of its creditor constituencies is memorialized in a restructuring support agreement.

Under the plan, holders of DIP new-money term loans will be paid in full, in cash from sale proceeds or exit financing.

Holders of DIP letter-of-credit claims will participate in the super senior exit facility.

Holders of DIP cash secured letters of credit will participate in the cash secured exit facility.

Holders of Barclays Sidecar, 2023 letter-of-credit facility, revolving credit facility and Lloyd’s facility claims will participate in the roll-off letter-of-credit exit facility or receive a share of a secured creditor funded debt distribution.

Holders of term loan facility and credit agreement hedging claims will receive a share of the secured creditor funded debt distribution.

Holders of senior notes claims will receive a share of 6% of the new equity interests in the reorganized company, plus additional shares as a result of a pre-bankruptcy funded secured claims excess cash adjustment, subject to dilution on account of new warrants and a management incentive plan. These creditors will also receive a share of new warrants.

General unsecured claims will be reinstated or holders will be paid in full in cash.

Existing equity interests will be cancelled, released and extinguished without any distribution.

Confirmation of the plan is expected to be obtained within about two months from the filing date.

Purchase agreement

As part of the restructuring transaction, subsidiaries of McDermott have entered into a share and asset purchase agreement with a joint partnership between Chatterjee Group and Rhône Group under which the joint partnership will serve as the stalking horse bidder in a court-supervised sale process for Lummus Technology.

Specifically, the joint partnership has agreed to acquire Lummus for a base purchase price of $2.725 billion.

McDermott will have the option to retain or purchase a 10% common equity ownership interest in the entity purchasing Lummus Technology.

The company said it expects to hold an auction in about 45 days to solicit higher or better bids for the Lummus Technology business. The sale will be subject to regulatory and court approval.

Proceeds from the sale of Lummus Technology are expected to repay the DIP financing in full, as well as fund emergence costs and provide cash to the balance sheet for long-term liquidity.

Creditor support

“The restructuring transaction, which has the full support from all of our funded creditors, including our unsecured bondholders, is further recognition of McDermott’s fundamentally solid operating business and proven strategy,” McDermott president and chief executive officer David Dickson said in the release.

“This financial restructuring will create a sustainable capital structure that matches the strength of our operating business. As a result of the transaction, we are eliminating over $4.6 billion in debt from our balance sheet and we will emerge with robust liquidity and significant financing to execute on customer projects in our backlog. Throughout this process, which we expect to complete expeditiously, McDermott will continue all business.”

Delisting expected

As a result of the upcoming Chapter 11 filing, McDermott said it expects to be delisted from the New York Stock Exchange within the next 10 days. McDermott common stock will continue to trade in the over-the-counter marketplace throughout the Chapter 11 process. The shares are proposed to be cancelled as part of McDermott’s restructuring.

According to the 8-K, McDermott’s board of directors approved a form of retention bonus award agreement for Dickson and group senior vice president for projects Samik Mukherjee. In accordance with the agreements, upon the company’s determination on Jan. 17 that it was likely to file bankruptcy, the unpaid portion of the retention bonus was paid immediately.

Kirkland & Ellis LLP is serving as legal counsel to McDermott, Evercore Group LLC is serving as the company’s financial adviser, and AP Services, LLC, an affiliate of AlixPartners, is serving as operational adviser. Jackson Walker LLP is serving as local legal counsel, Baker Botts LLP is serving as corporate legal counsel, Arias, Fabrega & Fabrega is serving as Panamanian legal counsel, and Prime Clerk is serving as administrative agent.

McDermott is a Houston-based provider of technology, engineering and construction solutions to the energy industry.

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