Teekay (NYSE: TK) is raising capital in the form of US$100 million in convertible unsecured debt (maturing 2023) and 10 million shares of common stock. Their former daughter entity, Teekay Offshore, raised some preferred share capital last week.
Teekay’s existing unsecured debt issue (disclosure: I own some) maturing in January 15, 2020 has been trading above par for quite some time. The stock is trading at relative highs ($10.70/share) and this action only has one reason: getting capital while the window of opportunity is still open. Their January 2020 unsecured debt is the majority of their existing debt.
I was not convinced and still am not convinced that oil and oil service companies are coming back from the dead. Teekay’s management choosing to sell equity at existing prices is another datapoint that supports this.
I hope management does not call out the January 2020 debt issue, but it seems to be likely. I will be holding on and collecting interest payments as much as I can before the inevitable call-out. I’m still quite stuck when it comes to investing cash at this stage in the market.
The “interest rate noose” that is slowly being tightened on the necks of the market will eventually hit the panic point when the market starts to have difficulty breathing. It’s pretty smart for players like Teekay to be doing what they’re doing right now – while they still can. I’d carefully look at companies that have upcoming maturity profiles from a position of credit weakness and ask whether you want to be invested in their equity.
I unloaded my TK debt today. They are trading at a YTM that is not justified. After paying their US$210 million debt due this year, they still have a $590M maturity (the unsecured debt) which will most definitely be funded either through another unsecured debt offering (as they will not want to unload more daughter equity). I’m not going to wait that long and I’m being compensated more than half a year of interest to get out now, so that is what I am doing.
Can you believe that 10+ year corporate debt is still trading as if government interest rates were near zero? It’s like the entire market is in a reality distortion field and people are not repricing corporate debt at all. I have never seen anything like this.
This is clearly a replay of the 1987 market crash. After a sufficient number of interest rate hikes the market got a few bad reports and the correction happened in one day. The difference between now and 1987 is that in 1987 we were at the start of the computer and networking revolutions, so corporate earnings in tech growing at 15%+ consistently quickly overcame the correction. This time around we have anemic corporate growth fueled mostly by inflation and tax gimmicks, so it might lead to a real recession.
@P One: Your read of this “insanity” is the read of almost anybody that has been doing this long enough to realize that what we are seeing is insanity. The trick is how to not get run over by the stampede when the gates to the rapidly burning barn are finally let open.
I think there is going to be a fortune to be made on a very concentrated long put position on entities that have been the usual targets for volatility selling, but the devil is always in the timing. Volatility shorters should get absolutely killed in 2018.
On the topic of TK, I’m seeing posts on Seeking Alpha that are just making me laugh. There is analysis there that looks great on the surface, but it is just well presented bullshit. Some of those guys should probably go into investor relations for junior gold mining companies. The big flaw is this a priori assumption that TGP is suddenly going to spin wool into gold when in reality their cash requirements for capital are massive – it is so staring them in the face that the daughters (and parent) are all raising cash like crazy but these cash flows are clearly imminent? The biggest case of cognitive dissonance imaginable.
More in general, it has really been 9 years since the 2009 market recovery and almost anybody invested in that time will have looked like a market genius but the tide is going to be coming back to shore. The same thing goes for players that have never seen anything but <2% CPI and <2% short term interest rates for the majority of their adult existence.