Back to top

Image: Bigstock

McDermott (MDR) Extends Credit Facility to $810 Million

Read MoreHide Full Article

Energy services firm McDermott International, Inc. recently entered into a five-year amended and restated credit agreement. The deal is likely to provide support to the company’s growth plans and increase its financial flexibility. Post the announcement of the agreement, shares of the company increased 5.58%, eventually closing at $7.57 on Jul 3.

The amended agreement replaces the prior borrowing capacity of $450 million and provides McDermott with $810 million capacity of letters along with $300 million revolving cash sublimit.  The term of maturity of the facility is also extended till 2022, provided that the company’s existing term loans are repaid by Dec 2020, reducing the leverage and simplifying the capital structure. Further, the restated agreement allows lenders to increase their commitments up to $1 billion.

The increased credit limit of the facility emphasizes the belief that creditors have in McDermott. The company has made a major turnaround through its cost saving initiatives to shore up its financials over the years. The company has also been winning a number of contracts lately, adding to its robust backlog of around $4 billion. McDermott recently won the Angelin gas field development contract from BP p.l.c (BP - Free Report) which will get reflected in the company's second-quarter 2017 backlog. The company’s broad product portfolio and impressive geographical footprint make both the investors and the lenders confident of McDermott’s earnings and cash flows.

McDermott is likely to utilize the proceeds from the credit agreement to boost its future growth plans. It will provide the company with a leaner capital structure and balance sheet flexibility which will enable McDermott to deploy cash to bolster its portfolio further.

Zacks Rank & Key Picks

Based in Houston, McDermott is an offshore energy-focused engineering and construction firm. Unlike other engineering and construction companies, McDermott is well-entrenched in major offshore energy projects and is one of the few global contractors that can provide a complete array of services including design to construction. Shares of McDermott have rallied 57% over the last one year, outpacing the Zacks categorized Oil & Gas Mechanical and Equipment industry.  However, McDermott’s exclusive focus on the offshore oil and gas business and the uncertain commodity price scenario, make us skeptical about the future prospects of the stock. Therefore, McDermott currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the same space are Exterran Corporation and Profire Energy, Inc. (PFIE - Free Report) . While Exterran sports a Zacks Rank #1 (Strong Buy), Profire Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Exterran is expected to deliver year-over-year earnings of 46.46% in 2017.

Profire Energy reported a positive average earnings surprise of 25% in the trailing four quarters.

Today's Stocks from Zacks' Hottest Strategies                                                             

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively. 

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


BP p.l.c. (BP) - free report >>

Profire Energy, Inc. (PFIE) - free report >>