I won’t go into extensive detail over reading Teekay Corporation’s quarterly report (and daughter entities), but my summary is that the corporation and their daughters are still a leveraged mess.
The blood-letting at the Offshore (NYSE: TOO) subsidiary (no longer consolidated since Brookfield now formally is calling the shots) appears to be normalized, but management is on the verge of losing the Tankers subsidiary (NYSE: TNK). They just came to the realization that offering a dividend while trying to de-leverage the company is not so wise. The Tankers entity is bleeding cash with no recovery in sight. Shipping has been a miserable industry for half a decade now as overcapacity persists.
Teekay was trying to keep up the appearance of a minimal dividend since it was directly feeding into the cash flows of the parent (Teekay) entity, but the game is almost up – the only entity worth anything for Teekay is the LNG group (NYSE: TGP) which isn’t doing that badly – they are actually making money, but right now it is very slow in relation to the overall debt required to finance everything.
I wouldn’t be surprised if there was another debt crisis coming up for Teekay – why their January 2020 unsecured debt trades at around a 6.1% YTM is beyond me. I dumped out of their debt early this year (at 5 cents over par).
Teekay has value on its balance sheet as it does still own considerable equity interests in TOO, TGP and TNK, but operationally the only entity that will be feeding cash into it will be TGP, and immediate cash flows are going to be undoubtedly de-leveraging, especially as interest rates rise.
Thanks for the comments on Teekay. I got out of Too.PRA with a bit of profit, so I feel lucky.
Shipping stocks are not for the feint of heart!
-Jmac
@JMac: Not for the feint of heart for sure! I only captured part of the upside (with my TK 2020 debt) when they announced the Brookfield recapitalization with TOO but those that had the fortitude of holding the prefs ended up very nicely.
Absent of a resurgence of crude (I’d call it at West Texas Crude of US$90 or above) I don’t see those offshore companies (RIG, DO, etc.) doing that well but there have been signs of a heartbeat or two in the past year. Surely the gains to be made here if it happens would be large and the bullish scenario, but the devil is always in the timing. I also know TOO isn’t quite directly in that category (being an offshore service firm) but I lump them in there as the research is similar.