Houston-based McDermott International Inc. — a company with ties in both New Orleans and Baton Rouge — owes tens of millions to businesses across Louisiana.
In late January, McDermott filed for Chapter 11 bankruptcy protection, where the company expects to reorganize itself through a prepackaged plan.
That plan has not yet been approved though and is slated to have a hearing in mid-March, several days after the proposed sale of its technology arm, the funds of which could be used to repay creditors. Lenders are expected to vote on the deal no later than Wednesday. Creditors are not among those voting on the plan because they are expected to be paid in full.
If the plan filed in a Texas bankruptcy court is approved in the coming weeks, it could bode well for businesses that have trade debt with McDermott and its Shaw Group and CB&I subsidiaries, which filed for bankruptcy as well.
There are between 50,000 and 100,000 creditors owed money by McDermott and its dozens of subsidiaries around the world. It was not immediately clear how many have ties to Louisiana but among the 50 largest creditors listed there were several owed a few million each.
BoMac Contractors Ltd., headquartered in Beaumont, Texas, is owed more than $13.5 million in trade debt by McDermott. BoMac Contractors has offices in Lake Charles and New Orleans.
Houston-based Apache Industrial Services, which has offices in Morgan City, Westlake and Prairieville, is owed another $5.4 million.
Meanwhile Westlake-based Sun Industrial Group is owed another $4.7 million and Baton Rouge-based MMR Constructors is owed $2.7 million by McDermott.
BoMac, Sun Industrial Group, MMR and Apache Industrial — all of which hired attorneys to represent the companies in this case — did not respond to comment for this story.
Beyond that, McDermott has about 4,000 employees across Louisiana, mostly in the Lake Charles area. The company has previously asserted it would be conducting normal business operations during the bankruptcy proceeding.
The way the plan is structured, those with trade debt are not voting on the plan; rather, companies are promised they would be paid in full if they have an eligible claim. In some ways, that's to curb any efforts by creditors who could potentially slow down or derail the bankruptcy plan.
"That plan would be good for unsecured creditors, but there are a number of conditions that have to fall into place for those payments to be made and the date of those payments is uncertain," said David Waguespack, attorney at Carver Darden Koretzky Tessier Finn Blossman & Areaux LLC in New Orleans. “The company still has the right to object to specific claims even though the plan provides that unsecured claims will be paid in full.”
For example, there may be an insurance company or bond which may be responsible for some creditor claims. Another complex issue to sort through is that there are projects still under construction and contracts which are still ongoing which could be rejected.
In a letter to suppliers, McDermott described that it expects to pay all its debts, but that isn't a guarantee.
"Expected is less than assured," Waguespack said.
In general, businesses are encouraged to file proof of claims with the Southern District of Texas bankruptcy court, an attorney isn't required to file a claim but sometimes groups of creditors may share one attorney for legal advice.
One aspect about the reorganization plan which appears to be less common is it doesn't differentiate between secured creditors and unsecured creditors for payment.
“The lender group’s willingness to convert its debt to equity in a reorganized company and support a plan that provides for the payment in full of unsecured creditors should clear the path for the plan to be confirmed by the court," Waguespack said.
Another aspect of the bankruptcy filing is the intent of the new owners who may see equity stakes as a good opportunity to sell the business to a new owner once it emerges from bankruptcy.
McDermott is slated to eliminate more than $4.6 billion in debt since more than two-thirds of its creditors back the restructuring plan. McDermott's restructuring will be financed by a $2.8 billion debtor-in-possession financing plan. A joint venture between New York-based investment firms, The Chatterjee Group and Rhone Group, would buy McDermott's subsidiary, Lummus Technology for $2.7 billion on March 9.
A court hearing on the McDermott bankruptcy plan is scheduled for March 12.
Alan Goodman, partner at Breazeale, Sachse & Wilson LLP, has been in the industry for about five decades. Goodman noted the format of the bankruptcy could mean a swift reorganization potentially even by May, if the plan is approved and becomes effective as proposed.
"These prepacked plans are good for the economy, because they take these big mega-companies which operates all over the world and the huge company stays viable, it doesn't get sold off in pieces," Goodman said. "But this is bankruptcy, which is the wild wild west of our legal system...lenders (or debtors) may change their minds, nothing is written in stone until March 12 and there are always issues that need to be worked through."
Since McDermott is a big player in Louisiana as a contractor there's likely pressure for local businesses to ensure a strong relationship despite trade debt lingering past 90 days due.
"McDermott may be a big customer (for a lot of Louisiana companies) and (Louisiana companies) want to continue doing business with them, most of these suppliers and subcontractors have made a lot of money doing business with them and there aren't many companies as large as this," Goodman said. "This whole (industrial construction) industry is so capital intensive. It's a service industry in part but the equipment and capital required to do this work is enormous so these established companies which are already set to do the work are very good for the economy and suppliers."
McDermott International moved its headquarters from New Orleans to Houston in 2005 before Hurricane Katrina and closed its last remaining office in the city in 2013.