JDP Capital Management - Teekay Offshore Partners L.P.

Summary

• Consensus continues to ignore the numerous positive financing and business developments that have happened since Brookfield recapitalized the company in July 2017.
• Morgan Stanley’s call was baffling.
• Management executed just as they said.

The following segment was excerpted from this fund letter.

Controversy and confusion is our primary source of opportunity as a fund, and Teekay Offshore (NYSE:TOO) is not short of this. We remain confident in our position which is rooted in quantifiable company value that is now more disconnected with the stock price than any time.

Seth and I met have met with management twice this year and presented strategies for improved investor communication. In both meetings, we returned with a high degree of confidence in the TOO team and a better understanding of the unique challenges they face in committing publicly to financial targets before achieving certain milestones. It was clear to us that management is very eager for the stock to trade for a rational multiple cash flow.

Consensus continues to ignore the numerous positive financing and business developments that have happened since Brookfield recapitalized the company in July 2017. The most recent example was earlier this year when Morgan Stanley erroneously predicted the company would face a $500 million funding gap for new shuttle tanker deliveries and an FPSO project.

Morgan Stanley’s call was baffling because management had just announced that capex of the FPSO project in question would be funded by the customer upfront—and that the shuttle tanker delivery financing would be “in place” in 2Q19. Management executed just as they said; this month the company announced an 18-year $414 million credit facility with the Norwegian government-backed bank at an eyepopping low rate of Libor + 225 bps, secured more advantageous terms on a revolving credit facility and secured $100M in new financing on its FPSO fleet. So, a strong vote of confidence around Teekay’s assets, customer quality, and Brookfield as a sponsor.

Additionally, the rumor-mill runs wild in the absence of a stated coherent strategy around Brookfield Business Partners (now 74% stake) commitment to not taking advantage of public minority shareholders.