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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  McDermott International, Inc.    MDRIQ   PAL1201471A1

MCDERMOTT INTERNATIONAL, INC.

(MDRIQ)
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MCDERMOTT INTERNATIONAL INC : Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant, Unregistered Sale of Equity Securities, Change in Directors or Principal Officers, Regulation FD Disclosure, Other Events (form 8-K)

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10/21/2019 | 09:28am EST

Item 1.01 Entry into a Material Definitive Agreement.

Amendments to Credit Agreements

On October 21, 2019, McDermott, as a guarantor, McDermott Technology (Americas), Inc. ("MTA"), McDermott Technology (US), Inc. ("MTUS") and McDermott Technology, B.V. ("MTBV"), each a wholly owned subsidiary of McDermott, as co-borrowers, and various other subsidiaries, as guarantors (the "Guarantors"), entered into Consent and Amendment No. 1 (the "Credit Agreement Amendment") to the Credit Agreement, dated May 10, 2018 (the "Credit Agreement"), by and among MTA, MTUS and MTBV, as co-borrowers, McDermott, as a guarantor, the Guarantors, a syndicate of lenders and letter of credit issuers, Barclays Bank PLC, as administrative agent for the term facility under the Credit Agreement, and Crédit Agricole Corporate and Investment Bank, as administrative agent for the other facilities under the Credit Agreement. Also, on October 21, 2019, McDermott, as a guarantor, and MTA, MTUS and MTBV, as co-applicants, and the Guarantors, entered into that certain Consent and Amendment No. 1 (the "LC Agreement Amendment") to the Letter of Credit Agreement dated October 30, 2018 (as amended, restated, supplemented or otherwise modified from time to time, the "Letter of Credit Agreement"), by and among McDermott, as guarantor, MTA, MTUS and MTBV, as co-applicants, and the Guarantors.

The Credit Agreement Amendment, among other things, amends the compliance levels for McDermott's leverage ratio, fixed charge coverage ratio and minimum liquidity covenant for each fiscal quarter through December 31, 2021. The Credit Agreement Amendment also modifies certain affirmative covenants, negative covenants and events of default to, among other things, make changes to allow for the incurrence of indebtedness and pledge of assets under the Superpriority Credit Agreement (as defined below). The Credit Agreement Amendment also modifies the participation fee we are charged to 5% for newly issued letters of credit or with respect to the increased amount of existing letters of credit.

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Like the Credit Agreement Amendment, the LC Agreement Amendment amends, among other things, the compliance levels for McDermott's leverage ratio, fixed charge coverage ratio and minimum liquidity covenant for each fiscal quarter though December 31, 2021. The LC Agreement Amendment also modifies (i) the event of default provisions and (ii) covenant provisions in the same manner as provided in the Credit Agreement Amendment. The LC Agreement Amendment also modifies the participation fee we are charged to 5% for newly issued letters of credit or with respect to the increased amount of existing letters of credit.

The foregoing descriptions of the Credit Agreement Amendment and the LC Agreement Amendment are qualified in their entirety by reference to the full text of the Credit Agreement Amendment and the LC Agreement Amendment, copies of which are filed hereto as Exhibits 10.1 and 10.2, respectively, to this report and are incorporated into this Item 1.01 by reference.

New Superpriority Credit Agreement

On October 21, 2019, McDermott, as a guarantor, entered into a new superpriority senior secured credit agreement (the "Superpriority Credit Agreement") with MTA, MTUS and MTBV, as co-borrowers (collectively, the "Borrowers"), a syndicate of lenders and letter of credit issuers, Barclays Bank PLC, as administrative agent for the New Term Facility (as defined below), and Crédit Agricole Corporate and Investment Bank, as administrative agent for the New LC Facility (as defined below).

Proceeds of the loans under the New Term Facility are to be used for general corporate purposes and to pay fees and expenses in connection with the Superpriority Credit Agreement and related transactions.

The Superpriority Credit Agreement provides for borrowings and letters of credit in an aggregate principal amount of $1.7 billion, consisting of (1) a $1.3 billion term loan facility (the "New Term Facility") and (2) a $400 million letter of credit facility (the "New LC Facility"). . . .

Item 2.03 Creation of a Direct Financial Obligation

On October 21, 2019, McDermott entered into certain direct financial obligations under the Credit Agreement Amendment, the LC Agreement Amendment and the Superpriority Credit Agreement and borrowings under the Superpriority Credit Agreement. The information regarding the Credit Agreement Amendment, the LC Agreement Amendment and the Superpriority Credit Agreement set forth in Item 1.01 of this Current Report is incorporated by reference into this Item 2.03.

Item 3.02 Unregistered Sales of Equity Securities

On October 21, 2019, in connection with and as consideration for the entry into the Superpriority Credit Agreement or the Credit Agreement Amendment and the LC Agreement Amendment, McDermott has agreed to issue, on or before the date that each of Tranche B, Tranche C and Tranche D is funded, an aggregate of approximately 27.3 million shares of Common Stock to lenders. Alternatively, McDermott may issue securities convertible or exercisable for, or securities substantially equivalent to, Common Stock. Those issuances are conditioned upon the funding by the Lenders of the applicable tranche. In connection with such issuances, McDermott expects to enter into a registration rights agreement pursuant to which any shares of Common Stock issued (or issuable upon conversion or exchange) will be registered with the Securities and Exchange Commission.

As described under Item 1.01, pursuant to the Consent and Waiver Agreement, McDermott will issue to the Preferred Stockholders 3.0% of the Accreted Value of the Preferred Stock and a number of Series A warrants equal to the product of 1.5% times the total number of shares of Common Stock outstanding as of October 21, 2019, in exchange for their consent for the entry into the Superpriority Credit Agreement, the Credit Agreement Amendment and the LC Agreement Amendment. The Preferred Stock is convertible or exchangeable for Common Stock only upon election of the Preferred Stockholders upon a change of control of McDermott. The information under the heading "Consent and Wavier Agreement" set forth in Item 1.01 of this Current Report is incorporated by reference into this Item 3.02.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors;

Appointment of Certain Officers; Compensatory Arrangements of Certain

Officers.

Retention Bonus Award Agreements

On October 17, 2019, in connection with entry into the Superpriority Credit Agreement, the Board approved a form of Retention Bonus Award Agreement (the "Retention Bonus Award Agreement") for David Dickson, President and Chief Executive Officer, Samik Mukherjee, Group Senior Vice President, Projects and Stuart Spence, Executive Vice President and Chief Financial Officer. The Retention Bonus Award Agreement provides for the payment of cash retention bonuses (each, a "Retention Bonus") of $3,375,000, $1,400,000 and $1,300,000 to each of Messrs. Dickson, Mukherjee and Spence, respectively. Each Retention Bonus will be payable as follows:

     •  1/3 of the Retention Bonus will be paid on the effective date of the
        Retention Bonus Award Agreement (the "First Retention Payment");


     •  1/3 of the Retention Bonus will be paid on the date of funding of Tranche
        B (the "Second Retention Payment"); and

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• 1/3 of the Retention Bonus will be paid on the date of funding of Tranche

C (the "Third Retention Payment").

If the executive is terminated for cause or voluntarily terminates without good reason the executive will be required to repay the applicable portion of the after-tax value of the Retention Bonus as follows: (i) the after-tax value of the First Retention Payment if such termination occurs before April 17, 2020, (ii) the after-tax value of the Second Retention Payment if such termination occurs before the six month anniversary of its payment, and (iii) the after-tax value of the Third Retention Payment if such termination occurs before December 31, 2020.

Also on October 17, 2019, the Board approved a form of Retention Bonus Award Agreement for other executive officers of McDermott (the "Retention Bonus Award Agreement for Other Officers"). The Retention Bonus Award Agreement for Other Officers provides for the payment of a cash Retention Bonus to executive officers of McDermott, including John M. Freeman, Executive Vice President, Chief Legal Officer and Corporate Secretary, and Ian Prescott, Senior Vice President, Asia Pacific, in the amount of $510,000 and $425,000, respectively. Under the Retention Bonus Award Agreement for Other Officers, if the executive is terminated for any reason other than due to a Qualifying Termination (as defined in the Retention Bonus Award Agreement for Other Officers) prior to December 31, 2020, the executive will be obligated to repay to McDermott the after-tax value of the Retention Bonus.

Item 7.01 Regulation FD Disclosure.

Press Release

On October 21, 2019, McDermott issued a press release announcing that it had entered into the Credit Agreement Amendment, the LC Agreement Amendment and the Superpriority Credit Agreement. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated by reference herein.

Cleansing Material

In connection with the entry into the Credit Agreement Amendment, the LC Agreement Amendment, and the Superpriority Credit Agreement, we entered into separate non-disclosure agreements (the "Non-Disclosure Agreements") with certain of the lenders under the Credit Facilities (the "Restricted Parties") to facilitate discussions regarding a refinancing or restructuring of McDermott's existing indebtedness or the sale of our Lummus Technology division. Pursuant to the Non-Disclosure Agreements, the Restricted Parties have been provided with confidential information regarding McDermott and its business (the "Cleansing Material"). We are obligated to disclose the Cleansing Material pursuant to the terms of the applicable Non-Disclosure Agreements. A copy of the Cleansing Material is furnished as Exhibit 99.2 to this report. The Cleansing Material contains all confidential information delivered to the Restricted Parties that constituted material non-public information regarding McDermott.

The information contained in this Item 7.01 and Exhibits 99.1 and 99.2 hereto shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and shall not be incorporated by reference into any filings made by McDermott under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

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Item 8.01 Other Events


Liquidity Update

Based on updated financial forecasts reflecting, among other things, potential adjustments on certain projects, we determined in September 2019 that there was a significant level of uncertainty as to whether we would be in compliance with certain financial covenants in the second half of 2019, including the leverage ratio, fixed charge coverage ratio and minimum liquidity covenant, under the Credit Agreement and the Letter of Credit Agreement (before giving effect to the amendments described in Item 1.01 of this report). If we were not in compliance with these financial covenants for either of the last two fiscal quarters of 2019, we may have triggered an event of default under the Credit Agreement and the Letter of Credit Agreement, and a potential cross default under the Indenture, dated April 18, 2018, by and among MTA, MTUS, McDermott, the other guarantors party thereto, and Wells Fargo Bank, National Association, as trustee, governing our 10.625% senior notes due 2024.

As a result of the uncertainty described above and our ongoing minimum liquidity requirements, we proactively engaged legal and financial advisors to evaluate our financial position and to address our liquidity concerns. As a result of this evaluation, we determined to enter into the Credit Agreement Amendment and LC Agreement Amendment, as well as the Superpriority Credit Agreement, each as described in this report, which we believe will address our liquidity concerns in the near term and allow us to continue to evaluate all potential long-term solutions to our liquidity needs. However, we can provide no assurance that we will meet all the conditions and other requirements to receiving the access to the additional capital from Tranches B through D under the Superpriority Credit Agreement, and our inability to obtain this capital or execute an alternative solution to our liquidity needs could have a material adverse effect on our securityholders.

Appointment of Chief Transformation Officer

On October 21, 2019, the Board appointed John R. Castellano, Managing Director at AlixPartners, LLP, and an authorized representative of AP Services, LLC, to act as McDermott's Chief Transformation Officer. Mr. Castellano was appointed pursuant to a requirement in the Superpriority Credit Agreement as a condition to providing the funding thereunder.

Advisors to the Lenders

Certain of the lenders and letter of credit issuers were advised by Bracewell LLP (as legal counsel) and FTI Consulting, Inc. (as financial advisor) and Barclays Bank PLC was advised by Latham & Watkins LLP (as legal counsel). In addition, certain of the lenders were advised by Davis Polk & Wardwell LLP (as legal counsel) and Centerview Partners LLC (as financial advisor).

© Edgar Online, source Glimpses

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