Obligation MacDermott 8% ( USP64655AB20 ) en USD

MacDermott

100 % ▼

Etas-Unis

USP64655AB20 ( en USD )

8% par an ( paiement semestriel )

30/04/2021 - Obligation échue

Prospectus brochure de l'obligation Mc Dermott USP64655AB20 en USD 8%, échue

2 000 USD

500 000 000 USD

P64655AB2

N/A

Obligation remboursée le 10 Mai 2018

McDermott International est une société mondiale d'ingénierie et de construction spécialisée dans les infrastructures énergétiques et industrielles.

L'Obligation émise par MacDermott ( Etas-Unis ) , en USD, avec le code ISIN USP64655AB20, paye un coupon de 8% par an.
Le paiement des coupons est semestriel et la maturité de l'Obligation est le 30/04/2021

Factsheet
McDermott International
13 December 2016
McDermott International USD 8% 1 May 2021 second lien bond
Disclaimer
This product has not been reviewed by research nor should this document be considered as credit research. This
Factsheet is only a summary document designed to help investors quickly identify the key elements of the company or
financial product referred to in this document and should be read in conjunction with the other offering documentation
available.
Issuer
McDermott International (MDR) provides integrated engineering, procurement, construction and installation (EPCI)
services for upstream oil and gas field developments worldwide. The service offering includes fixed and floating
production facilities, pipeline installations and subsea systems for offshore oil and gas projects, and relies upon MDR's
fleet of marine vessels, fabrication facilities and engineering offices. MDR's operations span across approximately 20
countries, with a presence in most major offshore oil and gas producing regions throughout the world. The company
reports its financial results under three reporting segments, according to geography. These segments are: AEA
(Americas, Europe and Africa), MEA (Middle East) and ASA (Asia). MDR's customers include various national oil and gas
companies, as well as major integrated and other oil and gas companies. For example, INPEX Operations Australia, Saudi
Aramco, PEMEX, Petrobras, Chevron, and Exxon Mobile were reported as some of MDR's significant customers from 2013
to 2015 (MDR Annual report, FY15). MDR's contracts are typically operated on a fixed price basis, which exposes the
company to risks of actual costs on fixed price contracts exceeding those originally expected by the company (see
"risks").
Recent price falls and subsequent volatility seen in global oil prices have contributed to much of the trading price
volatility of MDR bonds. By way of comparison, MDR USD 8% notes traded to a low price of USD63.5 in February 2016,
having been issued at USD100 in April 2014, and WTI Crude fell to USD26/bbl from USD104/bbl in the same period (a
75% correction). Since then, MDR bond prices have recovered back to around par, supported by two main factors: 1)
offshore and brownfield services, which account for more than 50% of MDR's revenues, have been less affected by
lower energy prices; and 2) MDR has implemented various cost saving initiatives in an attempt to recover margins in the
face of a falling revenue pipeline. However, the outlook for oil prices in the medium term remains uncertain, and
McDermott will continue to be inherently exposed to a very cyclical and competitive offshore Engineering & Construction
energy services sector. As at 30 September 2016, the company reported an order backlog valued at USD3.9bn,
compared to USD4.2bn as at FYE15. According to MDR's estimates, approximately 57% of backlog as at September 2016
was attributable to Saudi Aramco. The decline in the reported backlog is attributable to major projects being completed
and rolling off during the period. The current backlog of orders provides some stability to earnings, but such a backlog
does not necessarily represent guaranteed future revenue, and pricing pressures will remain as the large global oil and
gas companies maintain cost discipline amidst future price uncertainties.
For the last twelve months (LTM) ended 30 September 2016, MDR reported total revenues of USD2.7bn, adjusted
EBITDA of USD331.2m, and net debt of USD541.9m (including FIIG's adjustments*). Net leverage as at the end of 3Q16
stood at 1.6x. However, it is worth noting that whilst unrestricted cash and cash equivalents at the end of 3Q16 was
reported at USD500.5m, this high cash balance is the result of a capital structure that the company put in place in 2014
in order fund new and existing projects for the subsequent two or three years, and as such the degree of total debt
leverage is also important to take into consideration. Total debt leverage as at the end of 3Q16 stood at 3.1x. MDR has
access to a USD450m Letter of Credit (LC) facility which expires at the earliest on 15 January 2019 and is subject to
certain restrictive maintenance covenants, including a minimum fixed charge coverage ratio (reported to be 2.86x as at
3Q16, versus requirement of 1.15x or above), maximum total leverage ratio (2.15x as at 3Q16, versus requirement of no
more than 4.5x), and maximum secured leverage ratio (0.66x as at 3Q16, versus requirement of no more than 2.0x). As
at 30 September 2016, the LC facility had USD95m of availability. The LC facility forms part of the Credit Agreement
which includes a USD225m term loan maturity in 2019. MDR voluntarily repaid USD75m of the term loan in May 2016,
reducing the outstanding face to USD225m from the original USD300m.
*FIIG's adjustments to debt include a total of USD288m of amortising unsecured debt (USD48m) and prepaid stock
purchase contracts (USD240m) recorded as Tangible Equity Units (TEUs) in MDR's financial statements
Please refer to the Investment Memorandum and full research report for full details on the company and transaction.
Guarantor/Credit Wrapper
Multiple subsidiaries pari passu with second lien priority guarantee level (see IM)
ISIN
USP64655AB20
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FIIG Securities Limited | Page 1 of 3

Factsheet
McDermott International
13 December 2016

Trading Information
Minimum amount
USD10,000 (FIIG Restriction)
Denominations
USD1,000
Retail / Wholesale
Wholesale

Coupon
Coupon Type
Fixed rate note
Rate
8.0%
Amortisation
n/a
Coupon Payment Frequency
Semi annually

Important Dates
Issue Date
16 April 2014
Call Dates
1 May 2017 @ USD104.0
(Callable on and thereafter
1 May 2018 @ USD102.0
dates shown)
1 May 2019 @ USD100.0
Maturity Date
1 May 2021
Structure
Type / Rank
Senior secured, second lien
Domicile
US
Currency
USD
Amount Issued/Outstanding
USD500m/USD500m
Issuer Credit Rating
B1/B+ (Moody's/S&P) Stable outlook
Issue Credit Rating
B2/BB (Moody's/S&P) Stable outlook
Australian W/H tax exempt
No

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Factsheet
McDermott International
13 December 2016
Strengths

Dampened exposure to energy prices: Due to the recent corrections in energy prices, industry capital
expenditure (capex) cuts have tended to impact new field (greenfield) and deepwater subsea activities. MDR's
offshore and brownfield developments account for over 50% of total revenues, which have remained relatively
unaffected by energy price related capex cuts, and have thus provided a degree of resilience to MDR's earnings.
For example, for the two year period starting 1 January 2014 until 31 December 2015, the oil price as measured
by WTI Crude fell by over 63.5%, whereas MDR's EBITDA was USD84.4m and USD301.2m for FY14 and FY15
respectively, having recovered from negative USD248.7m in FY13. However, it must also be noted that the
sensitivity of earnings to oil prices is also dampened to the upside. For example, whilst WTI had seen a 31%
recovery from YE15 prices to 30 September 2016, MDR EBITDA only grew by 13.4% for the nine month period
versus the previous year

Strong orders backlog: As at 30 September 2016, the company reported orders backlog totalling USD3.9bn in
value. This is down from USD4.2bn as at FYE15 primarily due to major projects that have been completed and
rolled off over the past year. The current backlog is 79% offshore and 21% subsea, and expected roll off timings
are roughly 12.8% in 2016, 61.5% in 2017, and the remainder thereafter. The reported backlog consists of
expected revenues from both contracts awarded and those that management anticipate to be awarded, with
anticipated order activity forming a relatively small percentage of the overall backlog (c.6.5% as at FYE15). The
mix of offshore versus subsea is provides continued resilience to future energy price volatility, and the expected
roll off of backlog revenues provide support to FY17 expected earnings

Geographical diversification: MDR has an operating presence in most major offshore oil and gas producing
regions throughout the world. Financial reporting segments are split according to geography, including AEA
(Americas, Europe and Africa), MEA (Middle East), and ASA (Asia). As at FYE15, 47.5% of revenues were
generated in ASA, followed by 37.0% in MEA, and the remaining 15.5% in AEA. Australia (37.7%) and Saudi
Arabia (29.3%) were the largest contributors to overall revenues. The current order backlog is split 64% MEA,
21% ASA, and 15% AEA

Barriers to entry: The substantial capital costs and specialised capabilities required in becoming a global full
service and fully integrated offshore EPCI contractor create a barrier to entry into the market. However, MDR is
exposed to competitive pressures from regional and less integrated providers of certain EPCI services

Significant share in many targeted markets: Whilst the offshore oil and gas services market faces
competition from regional and less integrated companies, MDR's services are relatively niche, with the company
reporting a high degree of customer reliance on the services MDR is able to provide. S&P notes that MDR
commands a significant share in many of its targeted niche markets

Focus on cost: MDR began various cost saving and turnaround initiatives in 2014, which has resulted in what
management believes to be a better alignment of the overall cost structure to an expectation of a "lower for
longer" oil price environment. Management also anticipates that order intakes will focus on markets where
capital is available for investment, brownfield and producing basins with the lowest production costs, and
national oil companies who are committed to production levels

DLV 2000 extends fleet capability: Capex so far in FY16 has been relatively high due to the construction of
the new derrick lay vessel 2000 (DLV 2000). Total capitalised costs associated with the construction of the DLV
2000 as at 30 September 2016 were USD433m, and MDR expects that a further USD15m cash obligation will be
incurred in 4Q16. As such, most of the capex relating to the DLV 2000 has already been incurred. The DLV 2000
is the new flagship of the MDR fleet, and provides the capability of using this single vessel on projects which
would typically require a combination of multiple vessels. The DLV 2000 is currently working on the INPEX
Ichthys project, and is subsequently scheduled to work on Phase II of the Woodside Greater Western Flank
project. Both projects are in Australia

Adequate liquidity position: Following a broad refinancing in 2014, MDR's management put in place a new
capital structure that allowed sufficient liquidity to fund large and potentially lumpy capex requirements for the
subsequent two or three years. As such, current liquidity remains adequate, with over USD500m of unrestricted
cash and cash equivalents reported on the balance sheet as at 30 September 2016, as well as access to USD95m
of a USD450m Letter of Credit facility. Following various amendments to the Credit Agreement negotiated since
2014, MDR currently has no significant debt maturities until 2019

Relatively strong tangible asset coverage: As at 30 September 2016, the total value of PP&E (net of
depreciation) recorded on the balance sheet was USD1.7bn, which represents 1.6x total debt outstanding. The
value of PP&E would need to fall by more than 38.3% for the debt coverage ratio to fall below 1.0x

Voluntary debt repayment: Following the renegotiations of various amendments to the Credit Agreement,
MDR decided to pay down USD75m of the original USD300m term loan in May 2016. Amendments to the Credit
Agreement required that any proceeds from a potential future sale and leaseback transaction on the DLV 2000
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Factsheet
McDermott International
13 December 2016

be applied toward further repayment of the remaining principal of the term loan, which would in turn reduce the
degree of contractual subordination borne by bond holders of the 8% notes. Following the voluntary partial debt
repayment in May, S&P upgraded its rating on MDR 8% notes to BB, from BB-, and anticipates recovery rates of
90-100% in the event of payment default
Risks
Exposure to energy prices: Whilst the aforementioned exposure to brownfield and offshore projects provides
MDR with a degree of insulation from energy price volatility, overall demand for oil and gas field services and
construction on a global basis is still strongly tied to global energy prices. As such, continued low and volatile
energy prices would increase uncertainty on the value and timing of new project awards and therefore on
expected future revenue streams and cash flows
Exposure to certain political risks: Many of the countries and jurisdictions in which MDR operates are in the
emerging markets, and as such, operations are exposed to local and regional economic and political risks,
including risks that may alter the tax and legal framework in which MDR conducts its operations
Risks of project cost uncertainty in fixed price contracts: During 2013 the company suffered negative
EBITDA of around USD250m. This was due to a combination of operational and commercial issues with various
customers that affected MDR's estimates of costs at completion for several projects. Since then, MDR has
implemented various turnaround initiatives that have supported a steady improvement in operational results.
Nevertheless, with the majority of MDR's contracts subject to fixed price agreements, there remains significant
exposure to the risk of cost overruns
Risk of changes to backlog: Whilst the backlog is relatively conservatively reported by MDR, it includes a
portion of expected revenues associated with change orders relating to ongoing contracts that have not been
officially approved by the customer. At the end of FY15, the order backlog was USD4.2bn, of which USD277m
related to such unapproved change orders. In the event that such change orders cannot be approved by the
customers, MDR would record the loss of revenue as a claim
Customer concentration: There is limited customer diversity, with INPEX Operations Australia representing
36% of FY15 revenues, followed by Saudi Aramco accounting for 28%. According to management estimates, of
the USD3.9bn backlog as of September 2016, approximately 57% is attributable to Saudi Aramco. S&P expects
that MDR's customer concentration will remain high. Mitigating this risk somewhat is MDR's focus on national oil
customers who exhibit a strong commitment to certain production levels
Relatively high and likely increasing financial leverage: Whilst leverage as measured by net debt to
EBITDA is moderate, at 1.6x as of 30 September 2016 (including FIIG's adjustment for USD288m of obligations
not reported as debt in MDR's financial statements), there is currently over USD500m of unrestricted cash on
the balance sheet which MDR anticipates to use for various ongoing and new capex needs in the next one or
two years (FY14 USD320m and FY15 USD103m). Therefore, total debt to EBITDA is important to consider when
assessing leverage, which was 3.1x as of 30 September 2016. This degree of leverage is relatively high for a
company exposed to a cyclical and competitive industry. Further, despite improving orders activity and backlog,
management guides to slightly softer EBITDA forecasts for FY17 and FY18. Management forecasts imply that
total debt to EBITDA would reach 3.8x by FYE17. S&P expects total debt to EBITDA to range between 4.0-4.5x
for the next one or two years
Negative free operating cash flow: Cash flow from operations has been volatile in recent years, related to
energy price declines and volatility. This has been compounded by ongoing capex needs as well as new project
capex requirements (e.g. DLV 2000), which has resulted in negative free operating cash flow. Whilst the bulk of
the capex associated with the construction of the DLV 2000 has been incurred, free operating cash flow is likely
to remain constrained in the face of softer earnings expectations from management. Mitigating this somewhat
are signs of stabilisation in free operating cash flow, as well as an adequate liquidity position following
successful renegotiation and amendment of the credit agreement
Significant exceptions to restrictive covenants: The MDR 8% notes are subject to certain restrictive
covenants which include limitations on incurring additional indebtedness, limitations on restricted payments and
limitations on asset sales and the application of proceeds thereof. However, significant exceptions apply to these
covenants, including a general additional debt basket of USD375m, and various exceptions to the restricted
payments covenant of up to USD250m in total. In addition, the limitation on indebtedness is only subject to a
fixed charge coverage ratio (FCCR) test of greater than or equal to 2.0x, and no ratio test on existing or pro
forma debt leverage. The lack of more restrictive covenants limiting the incurrence of additional indebtedness
exposes investors to the risk of being in a more junior position in the capital structure as a result of additional
debt being incurred at a more senior level. Additional debt incurrence would also increase the risk relating to
significant financial leverage, as well as the risk of potentially lover recoveries in a default scenario. Mitigating
this to an extent are the existence of net secured leverage ratio tests for certain restricted payments, which may
balance MDR's financial policy between creditors and shareholders

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Factsheet
McDermott International
13 December 2016

Duration risk: The MDR USD 8% second lien notes mature in May 2021 and carry a moderate level of
duration. Investors are exposed to a degree of interest rate risk on the bond. For example, a 1% increase in
yields would result in about USD3.2 fall in the capital price of the bond, all other things being equal
McDermott has the option to call the bonds early at the call dates listed above. A
decision to call the bonds ahead of the maturity depends on a number of factors,
including the relative cost of entering new debt financing, the company's liquidity
Call Risk
position, and the availability and attractiveness of new funding opportunities at the
call date. Investors should examine the yield to worst, which may be the yield to
call or the yield to maturity, when evaluating the investment opportunity
Interest deferral/Cancellation
n/a
Non viability trigger
n/a
Summary
McDermott USD 8% second lien bonds maturity 1 May 2021 provide investors with a US dollar high yielding opportunity
in the oil and gas EPCI sector. The bond carries a degree of duration risk, which means that the capital price of the
bonds can be sensitive to changes in underlying changes in interest rates, as highlighted in the risks above.

© 2016 FIIG Securities Limited | ABN 68 085 661 632 | AFS Licence No. 224659
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