Tag Archives: Chapter 11

McDermott seeks large bonuses for senior management while in bankruptcy

Photo: Nandu Chitnis

McDermott has filed a motion with the Bankruptcy court seeking approval for an employee retention plan for both senior executives and key employees who are not executives. CEO David Dickson could receive $6.3 million in 2020 if the company hits its targets.



As a reminder, the company, which is based in west Houston, awarded Mr Dickson a $3.375 million cash retention bonus only last October. The company filed for Chapter 11 bankruptcy in January 2020, at which point the company paid out the last 30% of that award, even though it wasn’t technically earned.

Quarterly retention bonuses

The retention bonuses will be paid quarterly in cash. The senior executives and their target bonuses are as follows;

  • David Dickson (CEO) – $6.3 million
  • Chris Krummel (CFO) – $1.2 million
  • John Freeman (Chief Legal Officer) – $1.1 million
  • Samik Mukherjee (COO) – $1.3 million
  • Ian Prescott (Senior VP, Asia Pacific) – $423,000

The bonuses are dependent on the following performance metric;

  • Adjusted EBITDA  (27.5%)
  • Available cash balance (27.5%)
  • Technology Business sale proceeds (15%)
  • Safety (15%)
  • Achievement targets (15%)

The maximum payout is 200% of target, so Dickson could get $12.6 million.

The incentive scheme runs until the end of 2020, irrespective of whether McDermott exits Chapter 11 before then.

In October 2019, senior management got $7 million in bonuses

Freeman, Mukherjee and Prescott also got retention bonuses in October, similar to the targets above. Then-CFO Stuart Spence got $1.3 million, only to leave the company two weeks later. He got to keep his bonus, of course. If Mr Krummel got a bonus at that time, it wasn’t disclosed.

What’s particularly galling to me, is that, in October, when McDermott got their expensive financing and gave out the retention bonuses, the company was forecasting adjusted EBITDA for 2019 of $474 million. By the time they filed for bankruptcy three months later, that figure had been reduced to $183 million. They did meet their 2019 free cash flow forecast – an outflow of $1.2 billion – but only because they held back $300 million in payments to vendors.

There’s no real details on the key employees scheme, other than payments will be in fixed amounts, paid quarterly.

[UPDATE 02-16-20 Having reviewed the document filed with the bankruptcy court there are 13 employees in the senior executive plan. In the key employee plan there are 1,112 employees expected to receive a retention bonus worth a total of $79.4 million, an average of $71,403 each].

A reminder of how the company got into this mess

The bankruptcy stems from McDermott’s disastrous acquisition of fellow Houston company, CB&I in May 2018 for $4.1 billion ($2.4 billion cash, $1.7 billion stock). CB&I had a lot of legacy Engineering & Construction projects that have turned out to be much less profitable than McDermott expected at acquisition.

The costs to complete estimated at acquisition on just 3 projects (Cameron LNG, Freeport LNG and Calpine Power) increased by over $1 billion. As a result, the goodwill on CB&I ended up being $4.8 billion. McDermott wrote down $2.1 billion in goodwill 7 months after acquisition. That’s a quick destruction of shareholder value!

After the deal closed, Mr Dickson received a 25% increase in base salary to $1.125 million and a $1.125 cash bonus for completing the acquisition.

SEC filing – McDermott bankruptcy bonuses

20-30336 doc 367 – McDermott incentive scheme filed with Bankruptcy court

McDermott files for bankruptcy – Management cashes in

Photo: Nandu Chitnis

McDermott International has filed for a pre-packaged Chapter 11 bankruptcy after months of deteriorating business prospects.



The key highlights of the restructuring are;

  • elimination of $4.6 billion of debt. The secured lenders will get 94% of the new equity, unsecured bondholders the remaining 6%.
  • Unsecured trade creditors will be paid in full
  • Existing shareholders are wiped out
  • Lummus to be sold for $2.725 billion

However, worry not, the senior management have looked after themselves. Back in October McDermott announced they had obtained $1.7 billion in additional new financing (at 12% interest rates).

At the same time, the senior management were awarded large retention bonuses. David Dickson, CEO, got $3.375 million. Samik Mukherjee, COO (the one who acknowledged taking TechnipFMC trade secrets) got $1.4 million. The funding and the bonuses were to be paid in tranches. So far, two-thirds of the bonus have already been paid out. The Board of Directors have decided to pay the remaining one third to Dickson and Mukherjee as a gesture of ‘good faith’ even though Tranche C of that financing agreement never got paid.

CFO Stuart Spence resigned in November. He got to keep all his retention bonus of $1.3 million.

Business prospects have deteriorated considerably in the second half of 2019 due to the uncertainties surrounding the company. Bookings were only $3 billion in the second half, versus $14 billion in the first half. Customers have canceled contracts or placed McDermott on the disqualified to bid list. Vendors have placed liens and withdrawn from job sites.

 

https://www.prnewswire.com/news-releases/mcdermott-international-inc-announces-comprehensive-prepackaged-restructuring-transaction-to-de-lever-balance-sheet-and-immediately-position-company-for-long-term-growth-300990241.html

Halcon Resources files for Chapter 11 (again)

Halcon Resources finally files for Chapter 11 (again). It’s a pre-packaged deal in which $750 million of debt will be eliminated. The debt holders will own 91% of the equity after the re-organization.



Note that in Q1, the company paid $11.3 million in severance to the former senior executives who resigned on mass.

SEC Filing – Halcon bankruptcy

CFO Quentin Hicks resigns after 4 months

 

Charming Charlie files for bankruptcy

Mike Mozart of TheToyChannel and JeepersMedia on YouTube

Houston-based retailer, Charming Charlie, has filed for bankruptcy protection. The company has reached a restructuring pact with its lenders and equity sponsors that would allow it to keep most of its stores open through the holiday period.

Charming Charlie operates 375 stores in the US and Canada, selling accessories and. according to a report in the Wall Street Journal, expects to close about 100 in the coming weeks (other news report suggest these stores will close by 29 Dec).  The company said it has secured commitments for $20 million in new-money debtor-in-possession (‘DIP’) financing and also entered into a $35 million DIP asset-backed loan with its current lenders.

The company has also laid off some staff at its corporate office near the SW Freeway.

The company was founded in 2004 and is backed by PE firms, TSG Consumer Partners and Hancock Park Associates. Before the bankruptcy filing, Charming Charlie’s debt load consisted of a $150 million term loan and a $55 million asset-backed loan, according to S&P.

Charlie Chanaratsopon, the 39-year-old founder of the company, stepped down from the CEO position a couple of months ago, but remains the non-executive chairman of the company. Last year Mr Chanaratsopon was on the Forbes list of America’s richest entrepreneurs under 40  with an estimated net worth of $450 million.