Engineering, procurement and construction contracting giant McDermott International is filing for Chapter 11 bankruptcy reorganization in an effort to eliminate more than $4.6 billion in debt.
McDermott announced Tuesday a financial restructuring transaction that it says is supported by funded debt creditors. The plan also includes a Chapter 11 process to begin later Tuesday, according to the company release.
“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,” said David Dickson, President and Chief Executive Officer of McDermott. “Our record backlog, the majority of which has been booked in the last two years, and high rate of new project awards demonstrates our customers’ continued confidence in our business, the demand for our skills and our long-term opportunities ahead.”
The McDermott release says customer projects and operations will continue “in normal course.” The company is well known for EPC work building power plants, LNG terminals and other energy projects worldwide.
A major part of the financial restructuring includes selling McDermott’s Lummus Technology unit to New York-based equity firms The Chatterjee Group and Rhône Group for $2.725 billion, although the deal could be scuttled if higher bids arrive. Lummus Technology provides licensing and supply expertise in gas processing, refining, petrochemicals and coal gasification technologies.
McDermott will have the option to retain or purchase a 10 percent common equity ownership interest in the entity purchasing Lummus Technology. McDermott expects to hold an auction in approximately 45 days to solicit higher or better bids for the Lummus Technology business. Any deal will be subject to court approval before the bankruptcy case in Texas federal court.
Overall, McDermott is moving forward with $2.8 billion in debtor-in-possession financing, subject to court approval. The company also has secured exit financing of more than $2.4 billion and plans to emerge from Chapter 11 protection with about $500 million in funded debt, according to the release.
“This financial restructuring will create a sustainable capital structure that matches the strength of our operating business,” CEO Dickson said. “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 operations as normal and deliver on our commitments to our customers
Several months ago, McDermott announced it had up to $1.7 billion in additional financing from secured lenders. The group was led by Barclays Bank and Crédit Agricole Corporate and Investment Bank. The interest rate is close to 10 percent for the new term loan.
McDermott has played a significant EPC leadership role in numerous major energy projects recently. Those include work on the Cameron liquefied natural gas export terminal project (pictured) with Sempra Energy on the Louisiana Gulf Coast, as well as the York 2 dual-fuel power plant in Pennsylvania.
McDermott operates in more than 50 countries with more than 30,000 employees. Some of the company’s liquidity problems have been blamed on its $6 billion acquisition of EPC oil and gas project firm CB&I in 2018, as well as the increasing costs on several major projects, according to reports.
(Rod Walton is content director Power Engineering and POWERGEN International. He can be reached at 918-831-9177 and [email protected]).