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Teekay Offshore Partners: Be Prepared For Volatility


  • The recent share price rally may have decreased equity costs. An agile management can and should take advantage of the latest rally to sell any needed equity.
  • The stock will be volatile until the issues surrounding the loan of the Arendal Spirit are settled. Purchasing a put and a call may be a viable option.
  • Other issues such as other debt due, cost overruns, and whatever else concerns the lenders might complicate the loan negotiations. So more equity might be demanded by lenders.
  • Lender perception and industry reality could be very different. What was a viable loan in the past may not be a viable loan in the future.
  • Lender fears may be heightened by the perceived delay of a cyclical recovery of parts of the company business.

Teekay Partners (NYSE:TOO) has been on a roller coaster ride. This ride appears to be very dangerous still, but there may be reasonable ways to take advantage of the stock price volatility. Plus the market rally may have thrown management a lifeline. If that is the case, management needs to take that lifeline and run quickly.

Source: Seeking Alpha Website, July 6, 2017, Market Close

In early May, the market reacted negatively to a contract cancellation. On May 18, 2017, management reported the cancellation of the Arendal Spirit UMS contract. As can be seen above the stock basically tanked and then has recovered some. That recovery has decreased the cost of capital materially. So if management needs to raise capital, then now may be the best time to do just that. Waiting for a clearer crystal ball could make capital raises prohibitively expensive. The common unit holders could be relatively wiped out in the process.

The contract cancellation started a six month period after which the lender can call the note. More concerning is other issues were under negotiation for extensions or renewals. There were some cost overruns. Multiple debt negotiations can exponentially complicate those negotiations. But the crux of the problem is shown below:

Source: Teekay Offshore Partners, Q1 2017 Earnings Report

The current amount of long term debt due is $621 million but there is far less cash shown above and the cash flow statement is not showing nearly enough cash flow to pay that debt coming due. The amount of debt coming due is fairly large for the company size. So the company will have to refinance a fair amount of debt. The partner distribution has a high cancellation probability. Refinancing a lot of debt was OK when business conditions were stronger. But now the cost overruns and the contract cancellation may be

This article was written by

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I am a high school teacher for a decade. I am now retired.  Before that I was an analyst (operations and financial) and for a short time a Controller I have a B.S. with an emphasis in Accounting and an MBA (for which I studied Finance, Economics, and Management) I passed the CPA exam on the first try and am a retired CPA in the state of Maryland. I have a high school teaching credential and an MA in Math Education

Occassionally write articles for Rida Morwa''s High Dividend Opportunities https://seekingalpha.com/author/rida-morwa/research

Occassionally write articles on Tag Oil for the Panick High Yield Report


Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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