A UK judge said he was “horrified” by the cost of a plan to restructure a McDermott firm that is in debt as the group was “on the verge of collapse.”
CB&I UK Limited (Chicago Bridge & Iron Company), a firm owned by the US contractor, laid out a restructuring plan to address its debt when Colombian company Reficar disputed the idea, leading to a court case that concluded on 23 February.
Chicago Bridge & Iron Company joined the McDermott group in 2018, a move that the former described as creating “a premier, fully integrated provider of technology, engineering and construction solutions for the energy industry.”
McDermot is an international engineering, procurement and construction provider that is headquartered in Houston and has offices in London.
Judge Michael Green said: “I was horrified to discover that the Plan Company [CB&I UK Limited] has spent around US$150 million on professional fees in negotiating with its secured creditors from December 2022 and then putting forward the Plan and taking it to this hearing.
“That is an enormous sum of money, even taking account of the fact that it includes the costs of the supporting creditors as well.”
The judge added that the McDermott group “actually raised US$250 million of new money while the Plan was being negotiated”, however, this was set out to fund professional fees for getting the plan through.
CB&I was in debt to the Colombian business to the tune of around US$1.3 billion.
Following two of the seven classes of creditors did not approve the McDermott firm’s plan, CB&I decided to pursue the use of cross-class cram down power. This move proved to be successful.
The McDermott firm had argued that Reficar would be “no worse off” under the plan , however, the Colombian firm said that an alternative fairer deal could be quickly negotiated.
Ultimately, the court ruled that 10.9% – 19.9% of the shares in McDermott would be awarded to Reficar as part of the initial plan.
McDermott was ‘on the verge of running out of money altogether’
The court heard that CB&I was “on the verge of collapse” during the time of the plan, however, Reficar did not agree to the terms.
The court also heard that McDermott Group was also “on the verge of running out of money altogether,” judge Michael Green writes.
“The Group determined that it was necessary to borrow US$250 million of new money under a new term loan, which was secured against certain assets within the Group’s storage tanks business,” Mr Green explained.
“Although the Plan Company [CB&I] said that the new money was needed to be borrowed urgently to avoid a collapse of the Group, and there was no time to wait for the Plan to become effective, in fact the majority of the new money was used to pay the professional fees for the Plan.”
Mr Green sanctioned the plan and said: “It is unfortunate that Reficar was unable to agree the deal that would have shortened the trial and would have meant that I was considering an unopposed Plan.”
McDermott International is also facing a claim for “maximum recoverable damages” linked to its failure to complete a contract for BP offshore Mauritania and Senegal.
BP, acting on behalf of the partners, is leading the binding arbitration against McDermott. Kosmos, which has a 26.8% stake in the Greater Tortue Ahmeyim (GTA) project, said its share of recoverable damages was up to $160mn.
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