MDR stock is continuing to sink through January after sources close to McDermott International Inc (NYSE:MDR) said that the company was in talks with lenders to file for bankruptcy within weeks.
MDR Stock Collapses on Bankruptcy Woes
According to reports published in the Wall Street Journal last week, the troubled oil field services firm is in discussions with its lenders to file for bankruptcy in the coming weeks. Sources close to the matter have said that a consortium of creditors led by HPS Investment Partners and Baupost Group LLC will offer approximately US$2 billion in financing to the Houston-based company in order to maintain its operations during the bankruptcy period. MDR stock has collapsed over the last 18 months and currently trades at just $0.70.
McDermott International’s insolvency issues first came to the fore in Septemeber when it was reported that the firm had brought in turnaround advisors Alix Partners after posting a net loss of US$146 million in its July earnings. The company’s financial woes have arisen from an ill-advised acquisition of Chicago Bridge & Iron, the overrunning legacy costs from which are believed to have ballooned McDermott’s debt burden to US$4.3 billion, 14 times the company’s value. MDR stock has fallen from as high as $22.50 in May 2018.
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Secured Financing
Bankruptcy financing is expected to help the company provide letters of credit, which will be crucial to allowing the firm to continue financing ongoing projects. Most of these letters of credit expire within a year and will need to be renewed in order for the firm to continue operations. The company has also enlisted Evercore to pursue unsolicited interest in its Lummus Technology unit, which is believed to be valued at more than US$2.5 billion and could offer some reprieve for investors in MDR stock.
In addition to the likelihood of securing the necessary financing to see the firm through bankruptcy, McDermott International has also reached a forbearance agreement with holders of over 35% of McDermott’s 10.625% senior notes due 2024. This agreement will see holders of the notes forbear from exercising any rights related to the interest payment due on November 1, 2019, until at least January 15, 2020. With MDR stock currently trading below $1, it could be faced with a delisting warning from the New York Stock Exchange.
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