McDermott Seeking Bridge Loan Until it Can Sell Assets
McDermott International is seeking a bridge loan to help it cover a working-capital deficit of about $1.7 billion until it can sell an asset such as its Lummus Technology unit, according to a person with knowledge of the matter.
The Houston-based company, which provides construction services to oil and gas firms, is working with advisers on ways to fix shortfalls in liquidity and working capital, according to people with knowledge of the discussions. Existing creditors are expecting to be approached for the bridge loan.
Evercore Inc., the company hired to explore an asset sale, previously approached McDermott’s creditors about providing new money through second-lien debt issuance, said the people, who asked not to be identified discussing confidential matters.
McDermott’s bonds and term loan have plunged since news of its adviser hires began to leak. Existing creditors said the declines make it less likely that they would lend more money to the company without being at the top of the capital structure, such as in a bankruptcy or super-priority loan.
A representative for McDermott said the company declined to comment. A representative for Evercore didn’t have an immediate comment.
McDermott has large working capital needs and cash requirements due to the nature of its business, which requires upfront investments in projects. Those needs have been compounded by higher-than-expected costs on its Cameron and Freeport liquefied natural gas projects, which it purchased from Chicago Bridge & Iron Co., Michael Corelli, a senior credit officer at Moody’s Investors Service, said. The ratings company downgraded McDermott one notch to B3 last week.
McDermott has struggled since Chief Executive Officer David Dickson agreed to purchase assets from CB&I as part of a $3.5 billion deal last year. In addition to the working capital deficit, it reported a net loss of $146 million and negative free cash flow of $220 million for the three months ended June 30, according to the company. It’s also been hurt by a general slowdown in the oil and gas industry amid depressed commodity prices. Last year, the company had a net loss of $2.7 billion.
The company confirmed it was working with Evercore to explore unsolicited interest in its Lummus Technology business, with a valuation exceeding $2.5 billion. That amount combined with its $1.5 billion in boats, equipment and buildings, as well as $500 million in storage assets, could be enough to cover its debt and preferred stock, Citi research analysts wrote in a Sept. 18 note.
McDermott said it had about $3.8 billion of gross debt at the end of the second quarter and $1 billion of cash available.
If it were to sell the technology business for more than $500 million, McDermott’s bond rules stipulate that it must use the net proceeds to repay debt, according to a Covenant Review report.
The company is also getting advice from Kirkland & Ellis LLP and AlixPartners LLP, and a group of its bondholders have tapped Paul Weiss Rifkind Wharton & Garrison LLP and Houlihan Lokey Inc., people with knowledge of the matter previously said. Representatives for AlixPartners and Houlihan Lokey declined to comment; Kirkland & Ellis and Paul Weiss didn’t immediately respond to requests for comment.