Dive Brief:
- Struggling energy contractor McDermott International announced it will file for Chapter 11 bankruptcy later today in a restructuring that includes the sale of one of its divisions.
- In a statement released this morning, the Houston-based public company reported it will file a prepackaged restructuring plan at the U.S. Bankruptcy Court in Houston today. The plan, which will allow McDermott to receive more than $2.8 billion in financing and shed $4.6 billion of debt, has the support of two-thirds of its creditors.
- As a result of the Chapter 11 filing, McDermott 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 pendency of the Chapter 11 process. The shares are proposed to be canceled as part of McDermott's restructuring.
Dive Insight:
As part of the plan, McDermott has agreed to sell its petrochemical and refining technology group, Lummus Technology, to The Chatterjee Group and Rhône Group for $2.7 billion, subject to the results of a court-supervised auction process. The transaction must be approved by a bankruptcy judge in an auction process that could go to a higher bidder.
McDermott noted that its customer projects will continue "seamlessly" and all operations will continue in normal course. The restructuring plan provides that all suppliers will continue to receive payments and be paid in full.
"The restructuring transaction will strengthen the company's balance sheet, normalize its trade debt and position the company for long-term growth," said the statement, which noted that confirmation of the plan is expected within approximately two months.
It has been a tumultuous few years for McDermott, the second largest petroleum contractor in the country and the ninth largest construction firm overall, according to ENR. The company has faced financial difficulties since merging with Chicago Bridge & Iron Company (CBI) in May 2018, cutting guidance and losing 35% of its share price in a single day last summer, according to Energy New Bulletin.
On Nov. 4, CFO Stuart Spence resigned the same day the company reported a third-quarter net loss of nearly $1.89 billion on revenue of $2.12 billion. That number is down from net income of $2 million on revenue of nearly $2.29 billion in the third quarter of 2018. He was replaced by McDermott chief accounting officer Chris Krummel.
Since then, McDermott had pursued "different avenues to get its debt down to a sustainable level," Moody's Investors Service Analyst Michael Carelli told Construction Dive, who noted at the time that McDermott's $20.5 billion backlog was strong and that the company was continuing to win bids.
Earlier this year, analysts told Construction Dive that a filing would help the firm purge its debt and continue on with its $20 billion backlog of work, a sentiment that was echoed by McDermott President and CEO David Dickson, who said that the transaction recognizes the company's fundamentally solid operating business and proven strategy.
"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," he said.
