Item 1.01
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Entry into a Material Definitive Agreement.
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New Credit Agreement
On May 10, 2018, McDermott International, Inc. (McDermott) entered into a Credit Agreement (the Credit Agreement) with McDermott
Technology (Americas), Inc., McDermott Technology (US), Inc. and McDermott Technology, B.V. (McDermott Bidco), each a wholly owned subsidiary of McDermott, as
co-borrowers
(collectively, the
Borrowers), McDermott, as a guarantor, 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.
Proceeds of loans under the Credit Agreement were used, together with
proceeds from the $1.3 billion in aggregate principal amount of 10.625% Senior Notes due May 2024 issued by McDermott Technology (Americas), Inc. and McDermott Technology (US), Inc. (the Senior Notes) and cash on hand, (1) to
consummate the Exchange Offer (as defined below) and a series of transactions (the Core Transactions, and together with the Exchange Offer, the Combination) contemplated by, and in accordance with, the Business Combination
Agreement dated as of December 18, 2017 to which McDermott, Chicago Bridge & Iron Company N.V. (CB&I) and certain of their respective subsidiaries are parties (as amended, the Business Combination
Agreement), including the repayment of certain existing indebtedness of CB&I and its subsidiaries, (2) to redeem McDermotts $500 million aggregate principal amount of 8.000% second-lien notes due in April 2021 (the
8.000% Notes), (3) to prepay existing indebtedness under, and to terminate in full, McDermotts previously existing Amended and Restated Credit Agreement, dated as of June 30, 2017 (the Prior Credit Agreement), and
(4) to pay fees and expenses in connection with the Combination, the Credit Agreement and the issuance of the Senior Notes. Additional borrowings are available under the Credit Agreement for working capital and other general corporate purposes.
Certain existing letters of credit outstanding under the Prior Credit Agreement and certain existing letters of credit outstanding under CB&Is previously existing credit facilities have been deemed issued under the Credit Agreement, and
letters of credit were issued under the Credit Agreement to backstop certain other existing letters of credit issued for the account of McDermott, CB&I and their respective subsidiaries and affiliates.
The Credit Agreement provides for borrowings and letters of credit in the aggregate principal amount of $4.65 billion, consisting of the following:
(1) a $2.26 billion senior secured term loan facility (the Term Facility), the full amount of which was borrowed, and $319.3 million of which has been deposited into a cash collateral account (the LC Account)
to secure reimbursement obligations in respect of up to $310.0 million of letters of credit (the Term Facility Letters of Credit); (2) a $1.0 billion senior secured revolving credit facility (the Revolving Credit
Facility); and (3) a $1.39 billion senior secured letter of credit facility (the LC Facility). The Credit Agreement provides that:
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Term Facility Letters of Credit can be issued in an amount up to the amount on deposit in the LC Account, less an amount equal to approximately 3% of such amount on deposit (to be held as a reserve for related letter of
credit fees);
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subject to compliance with the financial covenants in the Credit Agreement, the full amount of the Revolving Credit Facility is available for revolving loans;
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subject to McDermotts utilization in full of its capacity to issue Term Facility Letters of Credit, the full amount of the Revolving Credit Facility is available for the issuance of performance letters of credit
and up to $200 million of the Revolving Credit Facility is available for the issuance of financial letters of credit; and
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the full amount of the LC Facility is available for the issuance of performance letters of credit.
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As of
May 10, 2018, there were issued (or deemed issued) under the Credit Agreement approximately $309 million of Term Facility Letters of Credit, approximately $60 million of letters of credit under the Revolving Credit Facility, and
approximately $1.30 billion of letters of credit under the LC Facility. As of May 10, 2018, no revolving credit borrowings were outstanding under the Revolving Credit Facility.
The Revolving Credit Facility and the LC Facility are scheduled to mature on May 10, 2023. The Term Facility is scheduled to mature on May 10, 2025,
unless on the date that is six months prior to the scheduled maturity date of the Senior Notes, more than $350 million of the Senior Notes are outstanding and McDermotts secured leverage ratio (as defined in the Credit Agreement) is
greater than or equal to 1.00 to 1.00, in which case the Term Facility will mature on that date.
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The Credit Agreement includes procedures for additional financial institutions to become lenders, or for any
existing lender to increase its commitment thereunder, subject to aggregate maximums for each of the Term Facility, the Revolving Credit Facility and the LC Facility set forth in the Credit Agreement.
The indebtedness and other obligations under the Credit Agreement are unconditionally guaranteed on a senior secured basis by McDermott and substantially all
of McDermotts wholly owned subsidiaries, including wholly owned subsidiaries resulting from the consummation of the Combination (collectively, the Guarantors), other than several captive insurance subsidiaries and certain other
designated or immaterial subsidiaries. The obligations under the Credit Agreement are secured by first-priority liens on substantially all of the Borrowers, McDermotts and the other Guarantors assets.
The Credit Agreement includes mandatory commitment reductions and prepayments in connection with certain asset sales and casualty events (subject to
reinvestment rights with respect to asset sales of less than $500 million), issuances of Term Facility Letters of Credit in excess of the balance in the LC Account (less the reserve amount described above), withdrawal of funds from the LC Account,
and incurrences of debt not permitted by the Credit Agreement. In addition, McDermott will be required to make an annual prepayment of term loans under the Term Facility and thereafter cash collateralize letters of credit issued under the Revolving
Credit Facility and the LC Facility with 75% of excess cash flow (as defined in the Credit Agreement), reducing to 50% of excess cash flow and 25% of excess cash flow depending on McDermotts secured leverage ratio. The Credit Agreement
requires the Borrowers to prepay a portion of the term loans made under the Term Facility on the last day of each fiscal quarter in an amount equal to $5.65 million. The Credit Agreement otherwise only requires periodic interest payments until
maturity. The Borrowers may prepay any or all of the term loans made under the Term Facility at any time without premium or penalty (other than customary LIBOR breakage costs and subject to certain notice requirements), except that any such
prepayment occurring as a result of a repricing event before May 10, 2019 will be subject to a prepayment premium equal to 1.0% of the principal amount of term loans being prepaid. The Borrowers may prepay all revolving loans under the
Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.
Revolving loans under the Revolving Credit Facility will bear interest at the Borrowers option at either (1) the Eurodollar rate (as defined in the
Credit Agreement) plus a margin ranging from 3.75% to 4.25% per year or (2) the base rate (the highest of the Federal Funds rate plus 0.50%, the
30-day
Eurodollar rate plus 1.0%, or the administrative
agents prime rate) plus a margin ranging from 2.75% to 3.25% per year. The applicable margin will vary depending on McDermotts leverage ratio (as defined in the Credit Agreement). Term loans under the Term Facility will bear interest at
the Borrowers option at either (1) the Eurodollar rate plus a margin of 5.00% per year or (2) the base rate plus a margin of 4.00%, subject to a 1.0% floor with respect to the Eurodollar rate. The Borrowers are charged a commitment
fee of 0.50% per year on the daily amount of the unused portions of the commitments under the Revolving Credit Facility and the LC Facility. Additionally, with respect to all letters of credit outstanding under the Credit Agreement, the Borrowers
are charged a fronting fee of 0.25% per year and, with respect to all letters of credit outstanding under the LC Facility and the Revolving Credit Facility, the Borrowers are charged a participation fee of (1) between 3.75% to 4.25% per year in
respect of financial letters of credit and (2) between 1.875% to 2.125% per year in respect of performance letters of credit, in each case depending on McDermotts leverage ratio. The Borrowers are also required to pay customary issuance
fees and other fees and expenses in connection with the issuance of letters of credit under the Credit Agreement. McDermott paid upfront fees, ticking fees, commitment fees, arrangement fees and other fees to certain lenders, arrangers and agents of
the Credit Agreement.
The Credit Agreement includes the following financial covenants that will be tested on a quarterly basis commencing
September 30, 2018:
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the minimum permitted fixed charge coverage ratio (as defined in the Credit Agreement) is 1.50 to 1.00;
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the maximum permitted leverage ratio is (1) 4.25 to 1.00 for each fiscal quarter ending on or before September 30, 2019, (2) 4.00 to 1.00 for the fiscal quarter ending December 31, 2019, (3) 3.75 to 1.00 for each
fiscal quarter ending after December 31, 2019 and on or before December 31, 2020, (4) 3.50 to 1.00 for each fiscal quarter ending after December 31, 2020 and on or before December 31, 2021 and (5) 3.25 to 1.00 for each fiscal
quarter ending after December 31, 2021; and
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the minimum liquidity (as defined in the Credit Agreement, but generally meaning the sum of McDermotts cash and cash equivalents plus unused commitments under the Credit Agreement available for revolving
borrowings) is $200 million.
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In addition, the Credit Agreement contains various covenants that, among other restrictions, limit
McDermotts and each of its restricted subsidiarys ability to:
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incur or assume indebtedness;
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make acquisitions or engage in mergers;
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sell, transfer, assign or convey assets;
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repurchase equity and make dividends and certain other restricted payments;
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change the nature of its business;
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engage in transactions with affiliates;
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enter into burdensome agreements;
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modify its organizational documents;
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enter into sale and leaseback transactions;
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make capital expenditures;
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enter into speculative hedging contracts; and
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make prepayments on certain junior debt.
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The Credit Agreement contains events of default that McDermott
believes are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events occurs, all obligations under the Credit Agreement will immediately become due and payable. If any other event of default
exists under the Credit Agreement, the lenders may accelerate the maturity of the obligations outstanding under the Credit Agreement and exercise other rights and remedies. In addition, if any event of default exists under the Credit Agreement, the
lenders may commence foreclosure or other actions against the collateral.
If any default exists under the Credit Agreement, or if the Borrowers are
unable to make any of the representations and warranties in the Credit Agreement at the applicable time, the Borrowers will be unable to borrow funds or have letters of credit issued under the Credit Agreement.
The foregoing summary is qualified in its entirety by reference to the complete text of the Credit Agreement, which is filed as Exhibit 4.1 to this current
report on Form
8-K
and is incorporated by reference into this Item 1.01.
Escrow Release and
Subsidiary Mergers
On May 10, 2018, the proceeds from the Senior Notes offering, which had been held in escrow pending satisfaction of
certain escrow conditions, were released and McDermott Escrow 1, Inc. and McDermott Escrow 2, Inc. (together, the Escrow Issuers) merged (the Mergers) with and into McDermott Technology (Americas), Inc. and McDermott
Technology (US), Inc. (together, the Post-Merger
Co-Issuers).
The proceeds released from escrow were used to pay a portion of the purchase price for the acquisition of the technology operations of
CB&I in connection with the Combination.
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Each Post-Merger
Co-Issuer
assumed, by operation of law, the obligations
of the applicable Escrow Issuer under the Senior Notes and the indenture governing the Senior Notes. In connection with the consummation of the Combination, McDermott, the Post-Merger
Co-Issuers,
McDermott
Technology, B.V. and each of the other Guarantors entered into supplemental indentures whereby the Senior Notes became jointly and severally guaranteed on a senior unsecured basis by McDermott, McDermott Technology, B.V. and the other Guarantors.
The foregoing description of the supplemental indentures is only a summary and is qualified in its entirety by reference to the full text of the
supplemental indentures, copies of which are filed as Exhibit 4.3 and Exhibit 4.4 to this Current Report on Form
8-K
and incorporated by reference into this Item 1.01.
Joinders to the Purchase Agreement
On May 10, 2018, McDermott Technology, B.V. and certain other Guarantors and Barclays Capital Inc. entered into joinders to the Purchase Agreement dated
April 4, 2018 (the Purchase Agreement), pursuant to which McDermott Technology, B.V. and certain other Guarantors became parties to the Purchase Agreement. The foregoing description of the joinders to the Purchase Agreement is only
a summary and is qualified in its entirety by reference to the full text of the joinders to the Purchase Agreement, a form of which is filed as Exhibit 1.1 to this Current Report on Form
8-K
and incorporated
by reference into this Item 1.01.