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S&P downgrades McDermott on greater-than-expected cash outflow

S&P Global Ratings downgraded McDermott International Inc.'s issuer credit rating to B- from B, with a negative outlook, according to an Aug. 6 research update.

Ratings also lowered its issue-level ratings on McDermott's senior secured term loan to B from B+ and its unsecured debt to CCC from CCC+.

The rating agency said the downgrade occurred because it now expects McDermott's cash outflows in 2019 to be higher than previous assumptions. Ratings said McDermott's second-quarter operating results were "weaker than expected" and that the firm "continued to incur costs on a number of its projects and some new awards bookings that have taken longer than expected."

McDermott on July 29 reported an adjusted net loss of $14 million, or negative 7 cents per share, down year on year and also missing the S&P Global Market Intelligence normalized earnings estimate for the second quarter of net income of 9 cents per share.

Ratings said some of the projects McDermott inherited following the acquisition of Chicago Bridge & Iron Co. NV on May 10, 2018, will likely be less profitable than it previously assumed and that some of the incentive payments McDermott will receive from its Cameron LNG project could come in 2020 rather than 2019. Ratings projects that the company's 2019 free cash flow will be more than negative $600 million, which leaves "little headroom in the rating for operational missteps or project delays."

The negative outlook reflects Ratings' expectation that it could lower the rating further if McDermott's "operating performance does not improve, its cash outflows are worse than expected or its liquidity becomes constrained."

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.