Houston-based McDermott announced that it is entering into a pre-packaged restructuring program that will be carried out under the scope of the US Chapter 11 process. The move will effectively eliminate the oilfield engineering and construction company’s debt load of $4.6 billion.
McDermott said in a statement that the arrangement has the support of two-thirds of its creditors and that all ongoing projects will continue without disruption. The company said late last year that it holds a project backlog valued at $20 billion.
The restructuring program will involve an injection of $2.81 billion in financing and a $2.4 billion credit facility capacity, both subject to court approval. Under the plan, McDermott expects to exit Chapter 11 restructuring with about $500 million in new debt. The proposed financing plus current cash flow generation is expected to be sufficient in maintaining normal operations, meeting payroll, making payments to suppliers, and deliveries to customers, the company said.
McDermott also plans to sell subsidiaries as part of the restructuring plan. Among them is Lummus Technology, a downstream-focused technology unit, which is to be sold to a joint venture between the Chatterjee Group and Rhône Group for $2.7 billion. McDermott may elect to retain 10% of the equity ownership of Lummus upon the proposed sale and all proceeds will be used to repay the restructuring loans.
“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, the president and chief executive of McDermott. “Our record backlog, the majority of which has been booked in the last 2 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.”
Founded almost a century ago, McDermott is the second largest oilfield construction contractor in the US. The firm’s international project portfolio includes offshore production platforms, pipelines, and large oil and gas processing facilities.
Much of the company’s debt was accrued through its 2018 acquisition of Chicago Bridge & Iron for $3.5 billion. In November, McDermott missed an interest payment on bonds that increased pressure on the company to seek bankruptcy protection. The financial troubles come after a prolonged down cycle in the global offshore sector.
The court-supervised bankruptcy process will result in McDermott’s removal from the New York Stock Exchange and its commonly traded stock will be canceled.