Engineering Firm McDermott to File for Bankruptcy

McDermott International Inc. said that it will file for chapter 11 protection Tuesday, after succumbing to depressed conditions in the offshore drilling industry and setbacks in major energy projects.

The engineering firm said it has reached an agreement with more than two-thirds of its creditors in a restructuring transaction that would eliminate more than $4.6 billion in debt.

McDermott has obtained commitments for a $2.81 billion debtor-in-possession facility to fund its bankruptcy proceedings. The financing, subject to court approval, could enable the company to stabilize its cash flows, McDermott said.

The Wall Street Journal reported on Dec. 30 that McDermott was in talks with lenders including HPS Investment Partners and Baupost Group LLC to provide the company with a bankruptcy loan to fund its business during the chapter 11 case.

As part of the restructuring, the company said Tuesday it would sell Lummus Technology, which licenses gas-processing, refining, petrochemical and coal-gasification technologies, to a joint partnership between private-equity firms Chatterjee Group and Rhône Group for $2.73 billion.

The company said it would have the option to retain or buy a 10% equity ownership interest in the joint partnership. McDermott said it expects to hold an auction in about 45 days to solicit superior bids for the Lummus business.

The company will emerge from the chapter 11 process with about $500 million in funded debt, it said. McDermott said it has secured committed exit financing of more than $2.4 billion in letter of credit facility capacity.

The Houston-based engineering and construction company has struggled this year after it reported losses on some big liquefied natural gas construction projects.

McDermott said it expects to operate as normal, continue to pay employee wages and benefits and pay suppliers in full amid the restructuring.

“We will emerge with robust liquidity and significant financing to execute on customer projects in our backlog,” McDermott President and Chief Executive David Dickson said.

With its coming chapter 11 filing, McDermott said it could be delisted from the New York Stock Exchange within the next 10 days. Its stock would continue to trade in the over-the-counter marketplace through the chapter 11 process, the company said.

McDermott’s bankruptcy team includes law firm Kirkland & Ellis LLP, financial adviser Evercore Group LLC and operations adviser AlixPartners. Davis Polk & Wardwell LLP and Centerview Partners LLC are advising the company’s term lenders. Linklaters LLP and Crédit Agricole Corporate and Investment Bank are advising the company’s revolving lenders. Paul, Weiss, Rifkind, Wharton & Garrison LLP, Brown Rudnick LLP and Houlihan Lokey Inc. are advising the company’s bondholders.

Source: WSJ