TOO - Teekay Offshore Partners L.P.

[given2invest]

I bought yesterday...happy to sign any letter to the board/BAM.

 

One thing we have going for us is the directors have been paid in stock (can see the annual filing) and have two incentives in trying to maximize the price paid to minority:

 

1) Their stock (duh)

2) They will be out of a job if it goes private

 

Not saying it means much but at least there's that.  Other positive is this is so levered so the difference between paying $1.05 and say $1.25 is not a lot from an EV perspective, especially since only buying 26% of the shares.  I know most here would be pissed with $1.25 though and it's far from certain they bump that much or the directors do the right thing.

[racemize]

would not the preferred be rated higher and worth more if bam was owner

 

Maybe.

 

The par value on the three series of prefs is $365m. That's significant relative to what BAM will pay to takeunder the common units. How optimistic are you that BAM will be motivated to give pref holders fair treatment? Have you read the prospectus for these prefs?  No party involved in this seems to have any fiduciary duty to the pref holders. 

 

I'm curious to hear thoughts from anyone that has an opinion on these

 

from "B" prospectus

 

In the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, holders of the Series B Preferred Units will have the right to receive the liquidation preference of $25.00 per unit plus an amount equal to all accumulated and unpaid distributions thereon to the date of payment, whether or not declared, before any payments are made to holders of our common units or any other Junior Securities. A consolidation or merger of us with or into any other entity, individually or in a series of transactions, will not be deemed to be a liquidation, dissolution or winding up of our affairs.

 

am just a layman in these affairs,  but would also like to hear some opinions from others

 

If you want to see another stranded brookfield preferred scenario (with accumulated dividends) look at DTLA--accumulated value+par is something like $40 and it trades at $21, and hasn't paid dividends for a long time. 

 

I happen to think that one will work out in the next 3 years or so, but I certainly wouldn't want to have started holding those preferreds at the beginning.

[petec]

For those interested, we are writing a letter to the TOO conflicts committee and to Brookfield Asset Management.  Governance at BBU is exceptionally bad and off-brand for Brookfield.  Will post a link shortly or email me at seth@jdpcap.com

 

Seth can they actually force people to sell at this point?

[petec]

I happen to think that one will work out in the next 3 years or so...

 

If you have the time to explain why on a relevant thread I'd be fascinated.

[nodnub]

would not the preferred be rated higher and worth more if bam was owner

 

Maybe.

 

The par value on the three series of prefs is $365m. That's significant relative to what BAM will pay to takeunder the common units. How optimistic are you that BAM will be motivated to give pref holders fair treatment? Have you read the prospectus for these prefs?  No party involved in this seems to have any fiduciary duty to the pref holders. 

 

I'm curious to hear thoughts from anyone that has an opinion on these

 

from "B" prospectus

 

In the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, holders of the Series B Preferred Units will have the right to receive the liquidation preference of $25.00 per unit plus an amount equal to all accumulated and unpaid distributions thereon to the date of payment, whether or not declared, before any payments are made to holders of our common units or any other Junior Securities. A consolidation or merger of us with or into any other entity, individually or in a series of transactions, will not be deemed to be a liquidation, dissolution or winding up of our affairs.

 

am just a layman in these affairs,  but would also like to hear some opinions from others

 

Me too.  But I've bolded what I see as the problem sentence here.

[mjm]

would not the preferred be rated higher and worth more if bam was owner

 

Maybe.

 

The par value on the three series of prefs is $365m. That's significant relative to what BAM will pay to takeunder the common units. How optimistic are you that BAM will be motivated to give pref holders fair treatment? Have you read the prospectus for these prefs?  No party involved in this seems to have any fiduciary duty to the pref holders. 

 

I'm curious to hear thoughts from anyone that has an opinion on these

 

from "B" prospectus

 

In the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, holders of the Series B Preferred Units will have the right to receive the liquidation preference of $25.00 per unit plus an amount equal to all accumulated and unpaid distributions thereon to the date of payment, whether or not declared, before any payments are made to holders of our common units or any other Junior Securities. A consolidation or merger of us with or into any other entity, individually or in a series of transactions, will not be deemed to be a liquidation, dissolution or winding up of our affairs.

 

am just a layman in these affairs,  but would also like to hear some opinions from others

 

Me too.  But I've bolded what I see as the problem sentence here.

 

care to expand on the problem

[5xEBITDA]

I think what he is pointing out that the language in the prospectus for the preferreds is only relating to the dissolution or winding up of TOO - i.e., they cease operations.

 

I don't have the documents, but the real language to look at would be change of control.

[nodnub]

 

care to expand on the problem

mjm,

 

There is no triggering event here (liquidation, windup etc) that would force them to redeem these preferred.

 

There are three pref series.  1 is already past the call date. The others are in the next year or two. The call date is not a maturity date... it is a option to redeem date. The company has that right, not the pref-holder. 

 

I saw racemize's comment about DTLA and looked at some of the history there to see what can happen.  This could sit like DTLA as dead money for 5 or 10 years or longer.  http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/dtla-preferred/

 

They have no obligation to redeem or pay dividends, ever. 

[John Hjorth]

mjm,

 

There is no triggering event here (liquidation, windup etc) that would force them to redeem these preferred....

 

This is just plain wrong. Please always go to the primary source & read. Primary source here: BAM SC 13D/A filing dated May 20^th 2019. Please read exhibit 1 in full. The word "merger" is used there. [<- Pure rubbish, please see nodnubs posts about this below and above.]

[nodnub]

mjm,

 

There is no triggering event here (liquidation, windup etc) that would force them to redeem these preferred....

 

This is just plain wrong. Please always go to the primary source & read. Primary source here: BAM SC 13D/A filing dated May 20^th 2019. Please read exhibit 1 in full. The word "merger" is used there.

 

John,  thank you for posting that. I read that in detail... but are we talking about the same thing?  Mjm and I were referring to the Preferred Shares, and I was reading the preferred share prospectus documents.  There is no trigger forcing the redemption of the preferred shares, is there?

 

The triggers for redemption of the pref shares are defined in the pref prospectus. (windup or liquidation can trigger redemption, but not a merger or change in control).

[mjm]

thank you both.

 

if BAM tries to pay itself "dividends" out of TOO however, then they would be required to pay the preferred the cumulative amount owed.  is that correct?

[nodnub]

thank you both.

 

if BAM tries to pay itself "dividends" out of TOO however, then they would be required to pay the preferred the cumulative amount owed.  is that correct?

 

They can get around this... 

 

There is an example in the DTLA thread I linked a few messages above.  BAM issued new series of DTLA pref only owned by BAM or it's subsidiaries.  It was senior to the publicly available pref shares of DTLA so they started issuing high dividends on that new series without having to pay dividends on the public prefs or on the common shares (common was entirely owned by BAM at that time).

 

 

[mjm]

i see. thx for your knowledge

 

[John Hjorth]

nodnub,

 

I have now reread yours and mjm's posts. I realize now that I've got your post totally upside down about it. Thank you for telling me in a very polite manner that I'm wrong! [ ; - D ]. My post edited accordingly, to hang there "to dry" eternally.

[gokou3]

thank you both.

 

if BAM tries to pay itself "dividends" out of TOO however, then they would be required to pay the preferred the cumulative amount owed.  is that correct?

 

They can get around this... 

 

There is an example in the DTLA thread I linked a few messages above.  BAM issued new series of DTLA pref only owned by BAM or it's subsidiaries.  It was senior to the publicly available pref shares of DTLA so they started issuing high dividends on that new series without having to pay dividends on the public prefs or on the common shares (common was entirely owned by BAM at that time).

 

Wow.. this is bad for the pref holders.. if BAM decides to stop paying dividends to the TOO preferred shares, those dividends become cumulative.  At what point can these pref holders force to get cash back and how (in the form of dividends or principal repayment)?

[johnny]

thank you both.

 

if BAM tries to pay itself "dividends" out of TOO however, then they would be required to pay the preferred the cumulative amount owed.  is that correct?

 

They can get around this... 

 

There is an example in the DTLA thread I linked a few messages above.  BAM issued new series of DTLA pref only owned by BAM or it's subsidiaries.  It was senior to the publicly available pref shares of DTLA so they started issuing high dividends on that new series without having to pay dividends on the public prefs or on the common shares (common was entirely owned by BAM at that time).

 

I've always been skeptical of the "DTLA-P will eventually be made whole" story--as I've mentioned in the DTLA thread, the affidavit a lot of people bet that timeline existed solely to get Brookfield's opposing counsel's fees reduced. It was absolutely in no way a binding commitment to resume dividends.

 

That said, I'm not sure they can run this exact same play here. If TOO continues to have plenty of cashflow to cover debt service and pref dividends, creating some new cash-flow blackhole senior tranche is going to look much worse in a legal spat (not a lawyer so I don't know what the relevant legal standards here are). But obviously DTLA shows how they -think- about the rights of minority shareholders--if they can get away with it they'll certainly do it. Which to me means that the only people that should be playing this game aggressively are people with more legal expertise than most of us.

 

Gaming the capital structure might not be necessary anyway--why not just have the LP hoard surplus and grow assets while BBU realizes all of the economic benefit through the GP. Not obvious to me that theres -any- legal standard or practical constraint that prevents that outcome here. I'm certainly not going to spend a few hours scrutinizing the GP agreement in order to find out at this point, anyway.

 

I had an order today at $1.05--I think it may end up positive EV and the lawsuit would be educational. Unfortunately it didn't fill. Congrats to whoever picked something up at $1.03 and $1.04 yesterday.

[Seth Lowry]

Attached is our letter to Teekay Offshore's Conflicts Committee.  Please use and distribute as you see fit.

Special_Committee_Letter_May_21_2019-FINAL.pdf

[Young_Investor]

Thanks for the letter Seth! This looks like an impressive roster of funds. Given the background of the Conflicts Committee, is there a high chance they will reject this offer? If so, is there any actions Brookfield could take to override that decision / pressure them?

[Steven B]

In hindsight (if you believe they were devious the whole time) issuing those higher cost prefs is starting to make a whole lot more sense....

[John Hjorth]

For those interested, we are writing a letter to the TOO conflicts committee and to Brookfield Asset Management.  Governance at BBU is exceptionally bad and off-brand for Brookfield.  Will post a link shortly or email me at seth@jdpcap.com

 

Seth can they actually force people to sell at this point?

 

I'm intrigued by this question from Pete,

 

If the answer to this question actually is "Yes", then I'll be really puzzled [i then live another place subject totally different partnership law & practice]. I think the TOO Partnership Agreement must be the key & basis for a judgement on this question. I couldn't find it on the TOO website. [it may be there some place that has skipped my attention, though.]

 

I found the original prospectus for TOO on the Oslo Stock Exchange. The agreement [dated, naturally] is in the annexes - better than nothing for those interested. Personally, I'm not going to dive into this matter, but I'm curious to hear from somebody about the answer. [i'm not directly involved in the TOO situation & the weather is too good today.]

 

Link.

[petec]

For those interested, we are writing a letter to the TOO conflicts committee and to Brookfield Asset Management.  Governance at BBU is exceptionally bad and off-brand for Brookfield.  Will post a link shortly or email me at seth@jdpcap.com

 

Seth can they actually force people to sell at this point?

 

I'm intrigued by this question from Pete,

 

If the answer to this question actually is "Yes", then I'll be really puzzled [i then live another place subject totally different partnership law & practice]. I think the TOO Partnership Agreement must be the key & basis for a judgement on this question. I couldn't find it on the TOO website. [it may be there some place that has skipped my attention, though.]

 

I found the original prospectus for TOO on the Oslo Stock Exchange. The agreement [dated, naturally] is in the annexes - better than nothing for those interested. Personally, I'm not going to dive into this matter, but I'm curious to hear from somebody about the answer. [i'm not directly involved in the TOO situation & the weather is too good today.]

 

Link.

 

It may have more to do with the law than the partnership agreement. Certainly in some jurisdictions if (say) 95% of shareholders are keen to sell, the other 5% can be forced to. But you do have to reach a threshold. I'm not sure what that would be for TOO, but my assumption is that the independent committee can only recommend that shareholders accept the offer. Whether they do so is up to them unless the threshold is reached.

 

NB this is only an assumption and I may be wrong.

[John Hjorth]

I agree to this important addition of yours to my post, Pete,

 

We can actually observe it on the registration document:

 

... Registered in the Republic of the Marshall Islands pursuant to the Limited Partnership Act ...

 

I'm not going to try guessing what implications of "pursuant" or "not pursuant" are here. However I feel confident that the for bloated superstructure that we see here for TOO - like for BPY, BEP, BIP & BBU - above the operating legal entities - is present for a reason, except a guess for tax reason.

[Pondside47]

For those interested, we are writing a letter to the TOO conflicts committee and to Brookfield Asset Management.  Governance at BBU is exceptionally bad and off-brand for Brookfield.  Will post a link shortly or email me at seth@jdpcap.com

 

Seth can they actually force people to sell at this point?

 

I'm intrigued by this question from Pete,

 

If the answer to this question actually is "Yes", then I'll be really puzzled [i then live another place subject totally different partnership law & practice]. I think the TOO Partnership Agreement must be the key & basis for a judgement on this question. I couldn't find it on the TOO website. [it may be there some place that has skipped my attention, though.]

 

I found the original prospectus for TOO on the Oslo Stock Exchange. The agreement [dated, naturally] is in the annexes - better than nothing for those interested. Personally, I'm not going to dive into this matter, but I'm curious to hear from somebody about the answer. [i'm not directly involved in the TOO situation & the weather is too good today.]

 

Link.

 

Short answer is yes but the price depends. See page 99 article XV SECTION 15.1 of the linked article. I wonder if similar clauses exist in things like  BPY.

[Pondside47]

Moved to the BAM thread.  http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bam-brookfield-asset-management/1010/

[petec]

To answer my own question, the take over bid requirement of Brookfield sponsored entities are much higher. 90% of the shares not owned by the offerer and its affiliates need to agree.

 

Sooooo...what’s the issue here? That’s a very strong protection for minorities. One could even put a positive spin on the situation and say that Brookfield are offering minorities liquidity on the same terms they offered it to the original parent. Large holders looking to exit might view that as a good thing - effectively a tagalong right.

 

I’m being deliberately provocative here, but only because I’m interested. No offence intended. What am I missing?