McDermott Signs Financing Deal, Withdraws 2019 Forecast

McDermott International (NYSE:MDR) recently announced that it has inked a deal to secure a financial funding worth up to $1.7 billion from specific lenders. Following this development, shares of the company jumped as much as 25% in premarket trade yesterday. However, this was offset soon after as the stock (and the bonds) took a massive hit post investors’ disappointment with the withdrawal of McDermott’s 2019 outlook and high-debt costs. The company ended the day witnessing more than 13% decline.

Under this near-term liquidity deal, McDermott — an oilfield service provider — can immediately access a $550-million term loan and $100 million in letters of credit, which in turn, will help the company finance its working capital and back the issuance of required performance guarantees on new projects.

With regard to this credit agreement, McDermott president and CEO David Dickson stated that “this new credit agreement is a continued signal from our lenders that they support McDermott, our underlying business, growth strategy and ability to achieve a long-term balance sheet solution."

At the same time, McDermott — shares of which tanked 70% to a 16-year low recently following rumours of a potential bankruptcy circulated in the media — terminated the earlier-announced sale of its industrial storage tank business. While this created some uncertainty about the company’s future amid investors, its high interest rate of roughly 10% on the new debt raised concerns over its elevated interest expense. However, this Houston-based company continues to mull over divesting its industry-leading Lummus Technology business after piquing prospective buyers’ curiosity.

It is important to note that how the remaining part of this loan will be used by McDermott is contingent upon various conditions based on the lenders’ decisions.

The company is a leading provider of integrated engineering, procurement, construction and installation (EPCI), front-end engineering and design (FEED), and module fabrication services for upstream field developments worldwide. It delivers fixed and floating production facilities, pipelines, installations and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects to help oil companies safely produce and transport hydrocarbons.

Zacks Rank & Key Picks

McDermott carries a Zacks Rank #3 (Hold). Better-ranked players in the energy space include Imperial Oil Limited (NYSE:IMO) , Equinor ASA (NYSE:EQNR) and TC Energy Corporation (TSX:TRP) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Imperial Oil’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters.

Equinor’s earnings beat the Zacks Consensus Estimate in two of the preceding four quarters.

TC Energy earnings beat the Zacks Consensus Estimate in each of the last four quarters.

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