Washington Group International, Inc.
BACKGROUND
Washington Group International, Inc. ("WGI") is an international engineering and construction firm with over $3 billion in revenues. WGI operated five business groups through 97 subsidiaries and 68 joint-ventures or limited liability companies in 43 states and over 35 countries
- Power
- Government
- Infrastructure & Mining
- Industrial Process
- Petroleum & Chemicals
CDG was retained as advisor to the senior bank lenders in April 2001.
At the time of its Chapter 11 filing in May 2001, WGI’s creditor exposure included over $700 million to its banks, $3 billion in bid and performance surety bonds, and $300 million in senior unsecured notes.
ISSUES
- WGI estimated that cost-to-complete liabilities embedded in contracts it acquired from Raytheon had ballooned from $400 million to $1.2 billion
- Raytheon was unable to provide a closing date balance sheet and liability information.
- Liquidity crisis followed WGI’s reassessment of its liabilities.
- Liability burden, liquidity crisis, and covenant defaults resulted in WGI’s access to surety bonding being virtually cut off, significantly reducing their ability to enter into new business contracts.
- Banks initially reluctant to provide DIP funding, particularly for cash flow negative projects
Availability of DIP financing was critical to stabilize liquidity and maintain vendor and customer confidence.
VALUE TO CLIENT
CDG’s valuation work, analysis of project level cash flow, debt capacity analyses and court testimony provided support for:
- The basis for lenders to extend $220 million in DIP financing.
- Filing a pre-negotiated Plan of Reorganization, and subsequent Plan negotiations and the Plan warrant structure.
- Potential litigation issues on the valuation of assets subject to lien challenges.
WGI, one of the only large construction and engineering companies to successfully reorganize, exited Chapter 11 debt-free, enabling new bonding capacity
- Banks received substantial portion of the reorganized company’s equity
- Upon exit, equity traded within the range of CDG’s valuation
- Subsequent stock price levels provided bank holders with potential for more than a full recovery