A federal bankruptcy judge on March 12 approved marine and energy services contractor McDermott International’s reorganization plan to eliminate more than $4.6 billion of debt and sell its Lummus Technology for $2.72 billion. The company filed for bankruptcy on Jan. 21.
“This is a significant achievement and allows us to emerge in the near term as a stronger, more competitive player, with a sustainable capital structure that matches the strength of our operating business,” says CEO David Dickson.
McDermott will complete a comprehensive restructuring transaction to eliminate its debt, which will position it for long-term growth, the company said. The firm was recently awarded an engineering, procurement and construction management services contract of undisclosed value to upgrade the hydrocracker at the Litvinov refinery in the Czech Republic, with completion set for later this year.
The Houston engineering and construction firm expects to emerge from bankruptcy during the second quarter after regulators approve the Lummus sale to two private equity firms that specialize in petrochemicals.
Lummus is a key part of McDermott’s CB&I business that was bought in 2018. But McDermott struggled with ballooning debt, primarily from the $6-billion CB&I acquisition, says Zack’s Equity Research. It attributes the firm’s financial falloff to the oil-price drop, which generated “soft revenues and escalated unallocated operating expenses” due to new award delays and project changes.
McDermott did not receive a better offer for Lummus Technology than the two PE firms’ stalking-horse bid during the solicitation period, the company said, and a court-supervised auction was canceled.
The firm had support in its bankruptcy plan from secured creditors, but some equity holders opposed it. There are as many as 100,000 creditors owed money by McDermott and its global units, including numerous construction sector firms. The U.S. Securities and Exchange Commission said it objected to plan approval “because it would release the liability of, and permanently enjoin actions against, non-debtor third parties” in cases of possible fraud, willful misconduct or gross negligence.
McDermott also faces a U.S. Justice Dept. probe of fraudulent invoices at a U.S. Energy Dept. project in South Carolina linked to CB&I and other site vendors.