Fundamental Analysis of McDermott International, Inc.: A Post-Bankruptcy Assessment
A fundamental analysis of McDermott International, Inc. requires a highly specialized approach that differs significantly from analyzing a publicly traded company with stable financial metrics. This is because the company underwent a major Chapter 11 bankruptcy and restructuring in 2020, emerging as a private company primarily owned by its former creditors.
 |
| Fundamental Analysis of McDermott International, Inc.: A Post-Bankruptcy Assessment |
The publicly traded symbols associated with the old entity (such as MDR) represent defunct equity or remnants of the former company and hold little to no value related to the current operating business. Therefore, a true fundamental analysis must focus on the financial structure and operational outlook of the reorganized, private entity.
1. Corporate Status and Investment Context
A. Private Ownership and Stock Status
The most crucial fundamental factor is its current ownership structure:
Private Company: The "new" McDermott International, Ltd. is not a publicly traded stock. Its equity is privately held, primarily by the company's former senior secured creditors who exchanged their debt for new shares during the 2020 Chapter 11 reorganization.
Public Symbols are Meaningless: Any trading activity associated with old tickers like MDR or MDRIQ (which was the over-the-counter ticker during bankruptcy) is for the legacy equity, which was canceled and wiped out during the restructuring. These symbols represent shares of a legal shell with virtually no value.
No Accessible Financials: As a private entity, McDermott is not required to file detailed quarterly financial reports (10-Qs) or annual reports (10-Ks) with the SEC. Therefore, traditional fundamental metrics (P/E, EPS, ROE) are not available or are irrelevant for analysis.
B. Business Overview
The reorganized company remains a premier, fully-integrated provider of Engineering, Procurement, Construction, and Installation (EPCI) and technology solutions to the energy industry.
Core Focus: Its primary market is in offshore, subsea, and downstream energy projects, providing services for liquefied natural gas (LNG), power generation, and petrochemicals.
Post-Restructuring: The company's business model is centered on leveraging its large-scale capabilities and proprietary technology to execute massive, multi-year projects globally.
2. Post-Restructuring Financial Health (Qualitative)
The financial goal of the 2020 bankruptcy was to establish a sustainable capital structure by eliminating a significant portion of its colossal pre-existing debt.
A. Balance Sheet De-leveraging
The most impactful fundamental event was the equitization of debt.
Debt Elimination: The restructuring eliminated over $4.6 billion of debt, allowing the company to emerge with more cash than debt and a drastically reduced interest expense burden.
Strategic Asset Sale: A key component of the restructuring was the sale of its Lummus Technology business for a substantial price, with proceeds used to pay down debtor-in-possession (DIP) financing and fund emergence costs.
B. Recent Financial Challenges and Second Restructuring
Despite the 2020 restructuring, McDermott faced ongoing financial strain, leading to a second, more recent restructuring.
Liquidity and Debt Maturity: McDermott faced renewed liquidity issues and looming maturity dates for its Letter of Credit and Term Loan facilities in 2024.
Cross-Border Restructuring (2024): The company successfully completed a complex, cross-border financial restructuring (using the UK Restructuring Plan and the Dutch WHOA) in March 2024. This action amended and extended the maturity of approximately $2.6 billion in facilities through June 2027, stabilizing its debt structure once more.
3. Operational Outlook and Industry Fundamentals
Since the company’s stability relies solely on its operational success, the analysis must shift to industry dynamics and backlog strength.
A. Energy Sector Tailwinds
McDermott operates in an industry with significant, albeit cyclical, demand.
Project Backlog: A critical indicator is the company's backlog—the value of contracted, unexecuted work. A robust, high-quality backlog signals future revenue certainty and customer confidence. The sustained high demand for LNG infrastructure and offshore energy development following global energy transitions and geopolitical instability provides a strong market for McDermott's services.
Integrated Model Advantage: The ability to offer a fully integrated service (EPCI) from concept to commissioning is a key competitive differentiator, potentially leading to higher margins and fewer project risks than for less-integrated competitors.
B. Execution Risk
Despite a clean balance sheet and strong market demand, execution risk remains the primary fundamental challenge in the EPCI sector.
Cost Overruns: Large, complex projects are prone to cost overruns, delays, and disputes, which can severely impact profitability and cash flow.
Working Capital: The business requires substantial working capital to manage project timelines and inventory, making a healthy cash position and access to credit (like its Letter of Credit facilities) fundamentally essential.
Conclusion for Fundamental Investors
For a public equity investor, a traditional fundamental analysis of McDermott International is currently not possible or relevant because the operating company is private.
The stock symbols (e.g., MDR) are non-functional remnants.
The actual fundamental value lies within the private equity held by its creditors.
The reorganized company's fundamental health is now defined by its significantly reduced debt load (achieved through two restructurings), the strength and profitability of its large project backlog, and its successful navigation of EPCI execution risk in the volatile global energy sector. Investors seeking exposure to McDermott's operations would have to pursue private market avenues.