Reviewing Teekay Offshore’s financial results (NYSE: TOO), it strikes me as rather obvious that they have missed their initial early 2016 targets when they proposed a partial equitization (issuing common units, preferred units, and some refinancing) of their debt problems. They also borrowed $200 million from the Teekay parent entity (NYSE: TK).
In Q1-2016, they delivered a presentation with this chart:
In subsequent quarters, the company has generally not referred to progressing tracking to this projection, mainly because their debt to cash flow through vessel operations ratio has not met these targets. While the underlying entity is still making money, revenues are eroding through the expiration and renegotiation of various contracts, couple with some operational hiccups (Brazil) that is not helping matters any.
Putting a lot of the analysis away from this article, while in 2017 the future capital expenditure profile is going to be reduced (which would greatly assist with the distributable cash flows), the company doesn’t have a lot of leftover room for matters such as debt repayment and working on improving their leverage ratios in relation to cash generation ability. This leaves them with the option of continuing to dilute or depend on the parent entity for bridge financing. Indeed, one reason why I believe management thinks the company is still open for dilution is due to them employing a continuous equity offering program – they sold nearly 1.9 million units in the quarter at an average of US$5.17/unit. If they don’t think the company is worth US$5.17/unit, why should one pay more than that?
I don’t believe that they are a CCAA-equivalent risk in the current credit market (this is a key condition: “current” credit market), and I also believe that their preferred units will continue to pay distributions for the indefinite future, I don’t believe their common units will be outperforming absent a significant and sustained run-up in the oil commodity price. Note that there is a US$275 million issue of unsecured debt outstanding, maturing on July 30, 2019, which will present an interesting refinancing challenge. Right now those bonds are trading at around a 10% yield to maturity.
I have no positions in TOO (equity or debt), but do hold a position in the Teekay Parent’s debt (thesis here).