U.S. engineering and construction services company McDermott has gained access to $350 million in financing under its super-priority senior secured credit facility, which sent its shares soaring on Monday.
McDermott said on Monday it had been granted access to the second tranche (Tranche B) of the $1.7 billion super-priority senior secured credit facility announced on October 21, 2019.
Following the agreement with the lenders in October, McDermott immediately gained access to $650 million of financing comprised of $550 million under a term loan facility and $100 million under a letter of credit facility, before reduction for related transaction fees and expenses.
In a statement on Monday, McDermott said that the Tranche B provided the company with a $250 million term loan facility and a $100 million letter of credit facility. The company expects to use the amounts available under the second tranche to continue financing working capital and support the issuance of required performance guarantees on new projects.
According to MarketWatch, following the announcement about gaining access to the second tranche of the credit facility, McDermott’s shares soared 20% in active premarket trading Monday.
McDermott also stated that it had entered into a forbearance agreement with holders of over 35 percent of McDermott’s 10.625 percent senior notes due 2024. Under the terms of the forbearance agreement, the applicable holders of the 2024 Notes have agreed to forbear from exercising any rights related to the interest payment due on November 1, 2019, subject to certain conditions.
The forbearance period extends through January 15, 2020, and may be extended further by a majority of the holders party to the forbearance agreement. McDermott is in discussions with additional holders of the 2024 Notes and anticipates that additional holders may execute the forbearance agreement in the coming days.
The Tranche B funding is expected to allow McDermott to continue collaborative discussions regarding a long-term balance sheet solution. In connection with the Tranche B funding, the required lenders have agreed to amendments to the agreement that would waive certain conditions and modify cross-default provisions in order to facilitate the Tranche B funding.
McDermott added it continued to pursue the previously announced strategic alternatives process for Lummus Technology.
Bloomberg: ‘Prelude to bankruptcy loan’
Back in November, Bloomberg reported that McDermott’s $1.7 billion super-priority senior credit facility “may be a prelude to a bankruptcy loan.” The company at the beginning of November skipped an interest payment on its bonds, which triggered a 30-day grace period to make the payment or file for Chapter 11.
Bloomberg said that, in case McDermott filed for bankruptcy in the next 18 months, the company must repay the loan before other payments, even if Chapter 11 was triggered by insolvency.
When it comes to the company’s financial performance in the third quarter of 2019, McDermott in early November reported that its 3Q 2019 revenues had dropped to $2.1 billion from $2.3 billion in 3Q 2018. Also, the company recorded a net loss of $1.9 billion from a profit of $2 million in 3Q 2018.
The net loss was due primarily to non-cash accounting charges of $1.5 billion related to impairments of goodwill and intangible assets and $256 million of changes in project gross profit on specified projects identified in a covenant of the company’s new super-priority credit agreement.
Additionally, the company reported a backlog of $20.1 billion, new awards of $1.7 billion, and a revenue opportunity pipeline of a near-record $89.1 billion for the third quarter of 2019.
Only a day after reporting its 3Q 2019 results, the company announced that its CFO, Stuart Spence, had resigned to pursue other opportunities. Spence was replaced by Chris Krummel, who had previously served as the company’s Global Vice President, Finance and Chief Accounting Officer.
Offshore Energy Today Staff
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