Nov. 12, 2019 7:00 pm ET
McDermott International Inc. investors knew they were investing in a faltering business when they extended $1.7 billion in rescue financing last month. They didn’t know the oil-and-gas engineering company had been notified it was under Securities and Exchange Commission investigation.
McDermott didn’t tell investors about the SEC’s investigation until after the ink had dried on the financing deal, believing the probe wouldn’t have a “material adverse effect” on the company and didn’t need to be disclosed, a person familiar with the matter said.
But the Houston-based company’s disclosure of the probe last week has aggravated a number of lenders who were unaware of it when they agreed to invest, according to another person familiar.
McDermott needed the money because of a series of operational setbacks and a depressed offshore drilling sector. The company has been negotiating with creditors on how to fix its balance sheet and had hired law firm Kirkland & Ellis LLP to advise it on debt restructuring options.
Lenders who provided the rescue financing, which will be disbursed in four tranches if McDermott fulfills certain conditions, are represented by law firm Davis Polk & Wardwell LLP and financial adviser Centerview Partners LLC. The company unveiled the loan package, which was arranged by Barclays PLC, on the same day that it disclosed an almost 35% drop in projected 2019 earnings, sparking wild swings in prices on McDermott bonds.
Two weeks later, McDermott filed a third-quarter earnings report in which it disclosed it had received a letter and subpoenas from the SEC in July notifying the company it was being investigated over disclosures about projected losses surrounding a Louisiana liquefied natural gas project. The facility, known as Cameron LNG, is being built as a joint venture between McDermott and Japan’s Chiyoda Corp.
In securities filings, McDermott has cited poor labor productivity and increases in contractor and subcontractor costs at the project and has pushed back its projected timeline.
The company has been and intends to continue cooperating with the SEC in the investigation, including by producing requested documents, according to the latest quarterly report.
McDermott also last week said it opted to skip an interest payment owed to bondholders and was continuing efforts to sell its Lummus Technology division, which it previously said had been valued by potential buyers at more than $2.5 billion.