Shares of McDermott International (MDR) declined 63% in trading today. Reports indicated that the company has hired turnaround advisor AlixPartners to help improve its capital structure and the long-term health of its balance sheet. The shares have moved up about 8% in after-hours trading.
The company issued a statement saying that they routinely hire external advisors. However, we are wary as AlixPartners specializes in companies approaching bankruptcy. Given McDermott’s weighty debt load and struggles with cash flow following last year’s acquisition of Chicago Bridge & Iron, we would not rule out a bankruptcy filing.
We wonder if this past weekend’s drone strikes on Saudi Arabia are prompting the AlixPartners hiring. Saudi Arabia is a large customer - if the strikes caused them to slow or halt new or current projects or delay their payments to McDermott, it would put real pressure on the company.
With no other news from the company, and with the shares down sharply yet also highly volatile, we will await more information before making any changes if any to our rating.
Disclosure Note: One or more employees of the Publisher own MDR shares.