TOO - Teekay Offshore Partners L.P.

[mjm]

notice the preferred is up as much or more than common, I assume on Brookfield's much better financial strength.  any chance the A or B preferred could be called in the foreseeable future and refinanced as most people here seem to have a much better grasp of the situation than I do.  realize the b preferred is not callable yet, but soon. TIA

[heth247]

notice the preferred is up as much or more than common, I assume on Brookfield's much better financial strength.  any chance the A or B preferred could be called in the foreseeable future and refinanced as most people here seem to have a much better grasp of the situation than I do.  realize the b preferred is not callable yet, but soon. TIA

 

Not sure about preferred. But for common, there is a GP call rights mentioned in 20-F: "our general partner may exercise its right to call and purchase common units if it and its affiliates own more than 80.0% of our common units;".  So after today's transaction, BBU will be owning 73% and all the warrants. In the future, after they exercise the warrants, they will be at ~77%, really close to 80%.

[gokou3]

Could Brookfield pull another GGP / Rouse, i.e. apparently neglecting them for years and then privatize TOO at a trivial premium to market price?

[BG2008]

Could Brookfield pull another GGP / Rouse, i.e. apparently neglecting them for years and then privatize TOO at a trivial premium to market price?

 

Certainly seems like something that Brookfield would do

[heth247]

Could Brookfield pull another GGP / Rouse, i.e. apparently neglecting them for years and then privatize TOO at a trivial premium to market price?

 

For the GGP/Rouse case, Brookfield was the minority holder (something like ~33%) at the time. But here with TOO, they are the controlling holder (73%). Unless they manage to get to 80% to exercise the GP call rights, I don't think they can offer a trivial premium to take TOO private without violating fiduciary duty to TOO shareholders.  https://www.bna.com/brookfield-gets-suit-n57982089689/

[BG2008]

Could Brookfield pull another GGP / Rouse, i.e. apparently neglecting them for years and then privatize TOO at a trivial premium to market price?

 

For the GGP/Rouse case, Brookfield was the minority holder (something like ~33%) at the time. But here with TOO, they are the controlling holder (73%). Unless they manage to get to 80% to exercise the GP call rights, I don't think they can offer a trivial premium to take TOO private without violating fiduciary duty to TOO shareholders.  https://www.bna.com/brookfield-gets-suit-n57982089689/

 

Heth,

 

I've just learned that Brookfield is going to do what's good for Brookfield

[heth247]

Could Brookfield pull another GGP / Rouse, i.e. apparently neglecting them for years and then privatize TOO at a trivial premium to market price?

 

For the GGP/Rouse case, Brookfield was the minority holder (something like ~33%) at the time. But here with TOO, they are the controlling holder (73%). Unless they manage to get to 80% to exercise the GP call rights, I don't think they can offer a trivial premium to take TOO private without violating fiduciary duty to TOO shareholders.  https://www.bna.com/brookfield-gets-suit-n57982089689/

 

Heth,

 

I've just learned that Brookfield is going to do what's good for Brookfield

 

That is for sure. But I wonder if being a controlling holder actually limits their ability to do such things. The article above mentioned that Brookfield was a majority holder of Rouse at one time, but they had to scale down to become a minority holder before they made the offer.

[BG2008]

Teekay trades as if all the shareholders are reading this thread

[heth247]

Teekay trades as if all the shareholders are reading this thread

 

Well, maybe I am naive but with all the financing they have put in place so far, TOO's business risk has been reduced significantly. I can see them doing $400M+ in operation cash flow for 2019. And now people are in fear of that it will be taken private for $600M or less? How do you justify the valuation there for a business that is not in distress? 

 

 

 

 

[racemize]

Teekay trades as if all the shareholders are reading this thread

 

Well, maybe I am naive but with all the financing they have put in place so far, TOO's business risk has been reduced significantly. I can see them doing $400M+ in operation cash flow for 2019. And now people are in fear of that it will be taken private for $600M or less? How do you justify the valuation there for a business that is not in distress?

 

Alternatively, they may not want to take it completely private so that they have a way to exit (e.g., since they did it via an offering with Graftech).  Although, the lower it goes, the more likely they might just buy it.  At this point it is pretty cheap compared to BBU's $1.5 billion cash pile.

 

It's also worth noting that BBU does not own TOO on its own, there are institutional partners, so that may have an effect as well.

 

Also, in the BBU call today, they said that Teekay came to them with this offer, which I calculated as ~$1.18 per share, although they had been discussing the transition for some time.

[heth247]

Alternatively, they may not want to take it completely private so that they have a way to exit (e.g., since they did it via an offering with Graftech).  Although, the lower it goes, the more likely they might just buy it.  At this point it is pretty cheap compared to BBU's $1.5 billion cash pile.

 

It's also worth noting that BBU does not own TOO on its own, there are institutional partners, so that may have an effect as well.

 

Also, in the BBU call today, they said that Teekay came to them with this offer, which I calculated as ~$1.18 per share, although they had been discussing the transition for some time.

 

That's a good point on BBU's actual ownership. I haven't listened to BBU's call. Here is from their press release:

 

Teekay Offshore

In April 2019, together with institutional partners, we agreed to acquire all of Teekay Corporation's remaining interests in Teekay Offshore, including a 49% GP interest, LP units, warrants and a loan commitment for a total of $100 million. Brookfield Business Partners’ share was approximately $45 million. With the transaction, Brookfield Business Partners' ownership interest will increase to approximately 30%. Prior to or following closing, a portion of Brookfield Business Partners' share may be syndicated to other institutional investors. The acquisition is expected to close in the second quarter.

 

What do you think of the odds that with the unexpected TK exit, BBU will get rid of the GP/LP structure and convert this to a C-corp? That should give the share price a boost.

 

[racemize]

No clue honestly.  I just don't want to get taken under.  I guess in the other instances of take under (GGP/Rouse), they wanted full control and to keep it long-term.  Here they don't want to own it permanently (I don't think).  So maybe there is hope.

[BG2008]

With the LP structure, we have less rights than a C Corp.  I don't think we have the right to appraisal etc.  Brookfield has a lot of expertise and are good investors.  But they do stiff people and take advantage of minority when they can.  At the end of the day, they need to think what's best for BBU and Brookfield fund investors.  Can't really have 15-25% long term CAGRs without sharp elbows and stepping on people along the way.  I'm not selling at these prices, more just musing about one of the risk of investing along Brookfield, which is very real. 

[BG2008]

This isn't to say that having a publicly traded vehicle isn't attractive.  It eliminates a second step of IPOing the company in a few years.  They kept TERP public and now they are increasing distributions on TERP. 

[Steven B]

Teekay trades as if all the shareholders are reading this thread

 

Hilarious and so true.

[heth247]

Agreed on the risk of taking under, it is something to keep in mind but not the reason to bail out now at this price level.

 

Can anybody help me to understand a couple of things from the earning presentation slide:

1. On page 7, they mentioned total new building capex of $820M and $664M remaining. Does this $664M include the $414M ECA facility they have obtained for the first 4 shuttles?

2. If so, then there is $664-$414=$250M that is not funded yet. I assume that is for the remaining 2 builds. On page 10, they mentioned shuttle 5-6 will be done through sale-leaseback transaction which will be closed in Q2 2019. What does this mean for their need of outlay of cash in 2019 for shuttle 5-6 capex? Why did they choose to do the sale-leaseback for shuttle 5-6?

 

Thanks.

[BG2008]

Agreed on the risk of taking under, it is something to keep in mind but not the reason to bail out now at this price level.

 

Can anybody help me to understand a couple of things from the earning presentation slide:

1. On page 7, they mentioned total new building capex of $820M and $664M remaining. Does this $664M include the $414M ECA facility they have obtained for the first 4 shuttles?

2. If so, then there is $664-$414=$250M that is not funded yet. I assume that is for the remaining 2 builds. On page 10, they mentioned shuttle 5-6 will be done through sale-leaseback transaction which will be closed in Q2 2019. What does this mean for their need of outlay of cash in 2019 for shuttle 5-6 capex? Why did they choose to do the sale-leaseback for shuttle 5-6?

 

Thanks.

 

Heth,

 

I think the price that the stock trades at, it compensates you for this risk.  Just hope that people on this thread didn't have cost basis in the mid to high $2s.  I've reduced my cost basis to low to mid $1s through some trading. 

[heth247]

Agreed on the risk of taking under, it is something to keep in mind but not the reason to bail out now at this price level.

 

Can anybody help me to understand a couple of things from the earning presentation slide:

1. On page 7, they mentioned total new building capex of $820M and $664M remaining. Does this $664M include the $414M ECA facility they have obtained for the first 4 shuttles?

2. If so, then there is $664-$414=$250M that is not funded yet. I assume that is for the remaining 2 builds. On page 10, they mentioned shuttle 5-6 will be done through sale-leaseback transaction which will be closed in Q2 2019. What does this mean for their need of outlay of cash in 2019 for shuttle 5-6 capex? Why did they choose to do the sale-leaseback for shuttle 5-6?

 

Thanks.

 

Heth,

 

I think the price that the stock trades at, it compensates you for this risk.  Just hope that people on this thread didn't have cost basis in the mid to high $2s.  I've reduced my cost basis to low to mid $1s through some trading.

 

Thanks, BG. What about my questions above, do you have any insights?  I think for the new builds, the equity contribution are almost done, and with all  the new financing in place, and the reduction of the amortization from $100M to $54M on the $450M shuttle RCF, they will free up lots of cash.  And this sale-leaseback transaction for shuttle 5-6 seems another way to save capital. So I am wondering what are they going to do with all those cash saved ... invest on growth? delever? call the preferred?

[BG2008]

Agreed on the risk of taking under, it is something to keep in mind but not the reason to bail out now at this price level.

 

Can anybody help me to understand a couple of things from the earning presentation slide:

1. On page 7, they mentioned total new building capex of $820M and $664M remaining. Does this $664M include the $414M ECA facility they have obtained for the first 4 shuttles?

2. If so, then there is $664-$414=$250M that is not funded yet. I assume that is for the remaining 2 builds. On page 10, they mentioned shuttle 5-6 will be done through sale-leaseback transaction which will be closed in Q2 2019. What does this mean for their need of outlay of cash in 2019 for shuttle 5-6 capex? Why did they choose to do the sale-leaseback for shuttle 5-6?

 

Thanks.

 

Heth,

 

I think the price that the stock trades at, it compensates you for this risk.  Just hope that people on this thread didn't have cost basis in the mid to high $2s.  I've reduced my cost basis to low to mid $1s through some trading.

 

Thanks, BG. What about my questions above, do you have any insights?  I think for the new builds, the equity contribution are almost done, and with all  the new financing in place, and the reduction of the amortization from $100M to $54M on the $450M shuttle RCF, they will free up lots of cash.  And this sale-leaseback transaction for shuttle 5-6 seems another way to save capital. So I am wondering what are they going to do with all those cash saved ... invest on growth? delever? call the preferred?

 

Heth,

 

You've been more on top of this than I have!!! I'll try to dig into this after Omaha. 

[BG2008]

Teekay trades as if all the shareholders are reading this thread

 

Hilarious and so true.

 

Value Investing requires a sense of humor.  What else are you going to do if you hit a 1-2 year dry patch?

[whistlerbumps]

Does anyone have thoughts as to why people are selling here?  Share price suggests either someone is blowing out or several people have concerns about something..... Perhaps it was how the CFO bungled the amortization question on the call?

 

Other option is that the price that Brookfield bought TK's TOO shares is probably <$1.20 per share when you remove value of loan, GP and warrants and so people are using that to mark TOO.... seems like it was a distressed transaction though and shouldn't really be too much of a signpost...

[heth247]

Does anyone have thoughts as to why people are selling here?  Share price suggests either someone is blowing out or several people have concerns about something..... Perhaps it was how the CFO bungled the amortization question on the call?

 

Other option is that the price that Brookfield bought TK's TOO shares is probably <$1.20 per share when you remove value of loan, GP and warrants and so people are using that to mark TOO.... seems like it was a distressed transaction though and shouldn't really be too much of a signpost...

 

I think this sell off is not related to the fundamentals of the business, but related to the fear that BBU will screw the minority holders. Another indicator is that preferred also dropped a lot but TOO's unsecured bond has rallied to $100.

 

 

[Steven B]

\

 

Heth,

 

I think the price that the stock trades at, it compensates you for this risk.  Just hope that people on this thread didn't have cost basis in the mid to high $2s.  I've reduced my cost basis to low to mid $1s through some trading.

 

MId $2s. I stupidly didn't trade in the stock and I looking back with this type of setup I'm not sure this is the type of stock you look for a double in.

 

Also, Heth has been super on top of it. Good job.

[Seth Lowry]

A leasing business model is supposed to eschew transparency and stability...its not supposed to be this hard. 

 

I would say that if BBU took under a company with "stable, fee-based cash flows and investment grade counterparties" + a $5.5bn backlog in just 20 months after a recap, than it should never be trusted to manage capital ever again. 

 

heth - The shuttle tanker facility was in 2Q, and so it should be netted against the $660M capex to get remaining liquidity needs.  The improved $50M amort from the RCF should help as well and as you point out FCF +the $100M FPSO facility covers spending.  Also, the sale leaseback on the tankers was new, it is unclear why they are pursuing this and it didn't get addressed on the call.  Hopefully it pulls forward FCF.

     

[heth247]

A leasing business model is supposed to eschew transparency and stability...its not supposed to be this hard. 

 

I would say that if BBU took under a company with "stable, fee-based cash flows and investment grade counterparties" + a $5.5bn backlog in just 20 months after a recap, than it should never be trusted to manage capital ever again. 

 

heth - The shuttle tanker facility was in 2Q, and so it should be netted against the $660M capex to get remaining liquidity needs.  The improved $50M amort from the RCF should help as well and as you point out FCF +the $100M FPSO facility covers spending.  Also, the sale leaseback on the tankers was new, it is unclear why they are pursuing this and it didn't get addressed on the call.  Hopefully it pulls forward FCF.

   

 

Seth, we will see if this fear is warranted or not. Wish BBU could come out with a statement that can assure investors' confidence. But I guess they will not. It is really frustrating that TOO became a collateral damage of TK's refi. TK just announced the new notes priced at 9.25% for 3 -year, that certainly indicates that they were in distress and the sell of TOO was a distressed sell.

 

Thanks for answering my questions. On their most recent 20-F, page 64, on contractual obligations, they listed $306M for new build in 2019, and $402M for 2020. However, things are changing fast, with the $414M ECA facility + the sales-leaseback transactions that is supposed to close in 2019 2Q, I feel like they will be done with funding for all the 6 new build CAPEX in 2019, so their 2020 FCF will look much better, unless they will go for new project/capex.