McDermott Receives Financing But its Outlook Remains Uncertain
(Bloomberg) -- McDermott International Inc. secured $650 million of new financing from lenders to keep the embattled energy-industry contractor and engineer afloat, though the withdrawal of its 2019 outlook and high debt costs dragged its shares and bonds back down from a surge.
The Houston-based company, which will get immediate access to a $550 million term loan and a $100 million in letters of credit, plans to use the funds to finance working capital and support the issuance of performance guarantees, according to a statement Monday. McDermott also announced the guidance withdrawal as well as the halt of efforts to sell its industrial storage tanks business.
While the financing is a lifeline that may avoid help McDermott avoid bankruptcy, the outlook withdrawal signals “near-term performance uncertainties or working capital challenges,” according to Bloomberg Intelligence. The company’s stock and bonds have cratered this year after it struggled with debt taken on from its $3.5 billion acquisition of Chicago Bridge & Iron Co. in 2018. It’s also grappling with reduced spending by the oil and gas industry.
To avert its cash crunch, McDermott agreed to pay around 10% interest rates on the rescue loan. The initial $650 million is part of a rescue financing package totaling $1.7 billion provided by some of its existing secured lenders, according to a filing Monday.
Shares of the company initially soared 29%, the most in a month, before tumbling as much as 14% in New York. While its 10.625% bonds due 2024 posted the biggest gain and volume among high yield debt on Monday, they reversed that advance. They are now leading high-yield market declines, dropping 5.6 cents on the dollar to about 23 cents. The debt now yields nearly 65%.
The company said it’s still exploring a sale of its Lummus Technology unit and its pipe-fabrication business. It said last month it had received expressions of interest valuing Lummus at as much as $2.5 billion.
The company specializes in building and installing large, expensive items like oil platforms and natural gas plants. It’s currently constructing Sempra Energy’s giant Cameron liquefied natural gas complex in Louisiana. Lummus licenses technologies used in petrochemicals, refining and gas processing, and holds more than 3,100 patents.
--With assistance from Jeremy Hill.
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