Brookfield to Buy Teekay Offshore Stake

Canadian partnership Brookfield Business Partners LP (NYSE:BBU) will buy the remaining holdings of TeeKay Corp. (NYSE:TK) in TeeKay Offshore Partners (NYSE:TOO). BBU is a unit of huge asset manager Brookfield.

TOO has 3 high yield preferred unit issues outstanding and they trade in the area of $18.80 to $21/share.

You can see the 3 outstanding issues here.

NOTE that this is not a buyout of TOO, but is a sale of the holdings of TeeKay Corp in TOO.

The details of the deal are thin at this moment, but it likely means good things for the preferred issues since TeeKay Offshore has had a rocky financial history. With Brookfield in the game the financials should become much less tenuous.

We had previous written about Brookfield and TeeKay Offshore in February.

16 thoughts on “Brookfield to Buy Teekay Offshore Stake”

  1. Joeri posted this today in another chat room. He is retracting his “that’s nonsense” comment based on Wells Fargo’s comments.

    Wells Fargo:

    “TOO Q1 Report. TOO posted a modest beat, with Q119 adjusted EPU of $0.05, above our estimate of $0.01 and Consensus of $0.03. The biggest focus, however, remains on TOO’s own refinancing efforts. TOO secured a $414MM senior secured shuttle tanker facility in April, and noted it expected to close a sale¬leaseback, FSPO balloon refi, and a $450MM shuttle tanker revolver refi this quarter. However, TOO would not disclose what their pro¬forma 2019 debt amortization/maturity schedule looked like (on a cumulative basis)¬¬and while we understand it’s a work in progress, the selective dissemination and refusal to update is a tough look (to say the least).

    Ultimately it may not matter, as we think Brookfield’s continued consolidation implies TOO may not be long for the public markets.”

    Joeri:

    That last line was not what I personally expected. I think it’s very notable that a big bank like WF would talk that concretely about TOO maybe going off the market.

    jeah, i always thought that concern was non-sense. But now that WF also specifically mentions it… I don’t see much reason to own TOO preferreds now, If they get taken private and go to pink sheets, these might drop 40% pretty quickly. Not worth owning for 1-2% extra yield over other much less risky shipping preferreds.

  2. I try not to overthink things. The TOO preferred ended the day up 5%-7% on very high volume. Score stands at Mr Joeri – 1, Mr LeJeune – 0, at least for now.

  3. Question for you guys—-if TOO is taken private, and holders of the preferred issues (I own the E issue) have no intention of selling because of the high yield, what is the risk? Is it only one of liquidity if a sale is necessary? Is there a principal risk due to a BK filing that perhaps suits Brookfield’s long term plans? Appreciate any advice you may have.

  4. There are 60+ million of warrants held by Brookfield that are exercisable at $.01 provided the common stock trades above $4 before Sept 2024. You would think that taking the company private would make those warrants worthless. They already own 60% of the common (and TK owns another 13% that may have been sold although that was not clear from the press release). I don’t know what they would gain by taking the company private at this stage of its development.

  5. I can assure you that the risk of preferred stock holders being screwed in a going private transaction is very real. Just ask anyone who owns Amtrust preferreds. They trade at half price today.

  6. Just an FYI:

    Richard LeJeune is staying out of the TOO preferreds because he is concerned that Brookfield may take TOO private which may not be good for the preferreds.

    Joeri things that is “nonsense.”

    Richard has outlined examples where Brookfield has taken companies private in the past which has not worked out well for the preferreds.

    Any comments from you guys who are a lot smarter than I am about these things? I tend to trust Joeri since he lives and breathes the shipping industry

    Here is a post of his:

    TOO has a lot of 8.5% debt (700M usd in NOK bonds). They surely won’t call the preferreds. BBU already owned 51% of the GP and was the largest shareholder. Now they own 100% of the GP and own 13% more of the shares. Not that much has changed here from a TOO preferred holders perspective. Some have raised concerns that Brookfield might want to take TOO private in the end, making the TOO preferreds trade on the pink sheets. I think that is non-sense. I don’t see any logic in that myself.

    Tradingwise, I think that TK and TOO common should trade very well today/next weeks. And TOO preferreds probably trade a bit higher too. Previously BBU was injecting massive capital in bonds ahead of the prefferds at very high rates (8.5%). Now they are also willing to add below the preferreds, in a larger common equity position. That sign makes the TOO preferreds safer.

    .

    1. Amy, I have no clue who either of these gentlemen are and couldn’t care less about their relative opinions. Both could be goofballs but I do agree with the post above. I have a preferred position and much happier than yesterday about it. My opinion plus a dollar will get you a cup of coffee, but…..the market certainly appears to take the side of Mr Joeri and P.

    2. Amy, I have been following the same debate on the TOO “going private” issue. Who knows what may happen – but I think there is some breathing room here. If you are an owner of TOO-A/B/E, you have the buy out of the TK stake by Brookfield as a positive factor (unfortunately TK has been bringing all their affliated companies down in recent months/years), you have decent earnings just announced, and you have the TOO-A/B/E approaching their ex-dividend dates, which will also generate some short term interest by high yield dividend chasers. So I expect the preferreds to be strong in the short term – if you are worried about the “going private” issue, it should give you an opportunity to sell into strength. If not, an effective hedge should be to buy TOO common, as both the TK divestiture and a going private sale should be good for the common – this could allow you to keep your preferreds but hedge just in case. Brookfield now owns TK’s warrants in addition to their own – that gives them a big incentive to keep the company public so they can cash those in. But no one has a crystal ball – sometimes it is better to prepare and hedge than to predict. My non-functioning crystal ball is particularly cloudy on this question so my reaction is to reduce risk.

  7. Well, I guess that’s why TOOprA and TOOprE are by far the brightest green on my screen today. Up by about 2% and 3% respectively. Large daily moves for a preferred. Congratulations to Tim for being prescient about what the cozy relationship between BBU and TK might eventually mean for the stock.

    1. Jerseyvinny–you could see this coming–kind of how the Brookfield companies have operated lately. It will be interesting to see if they decide to go ahead and do a full buyout in the next year.

      1. Thanks for the insight on TOO. TOO-B up over 15% since I bought it and current yield over 9%. Tempted to sell but if it is called next year gain would be more and I’m happy with the 9% yield. Of course if I knew it would be called I’d be buying more.

  8. Thanks Tim. I have a full position in all three issues. We’ll see how the market reacts to the news when it opens in just a few minutes. Fingers crossed….

    1. Gary–As I would expect the issues are up nicely 2-3%, but then they will take a “wait and see” attitude price wise.

    2. Teekay Offshore also reported good numbers for Q1 this morning, beating estimates on both EPS and revenue. The Brookfield strategy is working.

      1. Thank you, Tim and Amy, I bought TOO-E and paid way too much @$24.53 for 200 shares on 9/14/2018 in my IRA account. I definitely will hold because it will be a net loss not even tax deductible. I am surprised that Richard Lejeune turned around and recommended SELL. I also own 6 TK corporation senior bond and it has been consistently decent with its 8.5% MTD 2020 Jan 15 bought with 0.9 or 10% discount. Not sure whether TK corporation is the same as TOO. Probably not. There is TGP preferreds A and B, Teekay LNG.
        This is great news indeed. Brookfield seems to be a rare intersection where Tim and RIda et. al. meet. I thank Brookfield for their involvement with BPR, BPYPP and BEP too.
        BTW, Amtrust preferreds actually went up a little. I probably will consider unload some before the Hurricane season in June/July.

    3. Tim
      Brookfield has a good reputation as you know and several of he u.s. based wirehouses favor them, That said, BA’s shares have a very low yield and the general impression one gets is that management is not shareholder supportive. They have recently made several moves in the u.s. including buying a controlling stake in oaktree. That said, when one can buy BX or Aries why buy Brookfield which offers a much lower yield. Just my take. sc

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