Babcock & Wilcox parent completes plan, asbestos trust agreement financial obligations

By Caroline Salls

Pittsburgh, Dec. 27 - Babcock & Wilcox Co. parent McDermott International, Inc. completed the remaining financial obligations under Babcock & Wilcox's plan of reorganization and settlement agreement to fund the B&W asbestos trust ahead of schedule, according to a company news release.

McDermott said it paid the $355 million contingent payment right from cash on hand on Dec. 21 and retired the $250 million contingent promissory note using proceeds from B&W's credit facility on Dec. 1.

According to the release, the contingent payment right and contingent note vested on Dec. 1 because the Fairness in Asbestos Injury Resolution Act of 2005 did not become law by Nov. 30.

"By completing all payments owed to the asbestos trust ahead of schedule and during this calendar year, the company accelerates the tax benefit associated with these payments," McDermott executive vice president and chief financial officer Frank Kalman said in the release.

"We currently expect to receive a cash tax refund of approximately $250 million, most likely in late 2007 or early 2008, subject to the resolution of open IRS tax audits."

To retire the contingent promissory note, B&W used the term loan feature under its credit facility.

The new term debt matures on Feb. 22, 2012 and bears interest at the Libor plus 300 basis points.

McDermott can prepay this loan at any time without penalty.

"We intend to retire this loan during 2007 if B&W is able to simultaneously increase its capacity under its revolving credit facility," Kalman said in the release.

As a result of the contingent note retirement, McDermott expects to incur a $5 million charge during the fourth quarter of 2006.

In addition, McDermott announced its intention to combine the company's two groups of U.S. legal entities, McDermott Inc., which is the indirect parent company of B&W and BWX Technologies, Inc., and J. Ray McDermott Holdings, LLC into a single U.S. consolidated group.

The release said this reorganization will return the company to a more tax-efficient U.S. legal structure now that the B&W asbestos issues have been resolved.

After completion of the proposed consolidation, the company said it expects at least $275 million of net operating losses to be available to offset the combined future taxable income generated by the single consolidated group.

Babcock & Wilcox is the Barberton, Ohio-based subsidiary of McDermott International that designs, supplies and services power generation systems and equipment.

Babcock & Wilcox filed for bankruptcy on Feb. 22, 2000 in the U.S. Bankruptcy Court for the Eastern District of Louisiana and emerged on Feb. 22, 2006.

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