McDermott Prices $500M Senior Notes - Analyst Blog

Offshore oil and gas-focused engineering and construction firm, McDermott International Inc. MDR has priced senior secured notes worth $500 million. The second-lien notes, carrying an interest rate of 8.00%, are expected to mature by 2021. The offering is likely to close on Apr 16, 2014.  

The senior notes will likely be priced at par and are expected to be offered to selected institutional investors. McDermott reveals that the net proceeds of roughly $491.0 million will likely be utilized for refinancing revolving credit facility under its present credit contract. The funds will also be spent on normal corporate activities.

McDermott is planning to release its first-quarter 2014 financial results on May 7, 2014, after the closing bell. The Zacks Consensus Estimate for the company's first-quarter is pegged at a loss of 9 cents per share. 

Houston, Texas-based McDermott primarily serves the worldwide offshore oil and gas field developments, including the front-end design and detailed engineering, fabrication and installation of offshore drilling and production facilities.

On Mar 31, 2014, McDermott declared that its first-quarter 2014 results might not meet its recent projection. Moreover, the company apprehends that its profit margin, from the operation of backlog projects, will not be able to cover its fixed expenses − direct operating costs and general and administrative expenses – and restructuring costs.  

Thus, McDermott currently has a Zacks Rank #5 (Strong Sell), implying that it is expected to significantly underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better ranked players in the energy sector like Range Resources Corp. RRC, Helmerich & Payne Inc. HP and Unit Corp. UNT. All the stocks sport a Zacks Rank #1 (Strong Buy).