McDermott International: Bankruptcy Imminent ?

Bloomberg reported on December 30, 2019 that McDermott International’s stock had been declining for the past two days on rumors that a Chapter 11 filing was in the works and $2.0bn of financing has already been lined up to help the engineering company post filing as access to letters of credit to support projects is critical in its business.

None of the above will come as any surprise to the readers of the BDC Credit Reporter. We’ve been ringing the bell since September about the company and not been much impressed with the financial rescue plans that have been mooted or implemented in the interim to keep McDermott from “going chapter”. On October 21, 2019, we even placed McDermott on our Bankruptcy Imminent list. That fate for the company now seems everything but certain. The common stock shareholders seem to have come to a similar conclusion. Since that October post, the market capitalization of McDermott has dropped by nearly two-thirds.

For the BDC sector, the only good news – as noted in earlier posts – is that BDC exposure is small ( $10.4mn at cost) and limited to non-traded Business Development Corporation of America and Oaktree Strategic Income (OCSI). Both BDCs are invested in the 2025 Term Loan, which they’ve already discounted (35%) at September 30, 2019. According to Advantage Data that same loan now trades at a (43%) discount. Up ahead is likely some interruption/loss of investment income as well, with the non-listed BDC with the most to lose with 95% of the exposure.