TeeKay Offshore and Dynagas Preferred Units

Wow–what a lousy day for these two companies.

TeeKay Offshore (NYSE:TOO) will potentially be bought by Brookfield Business Partners (NYSE:BPY) for $1.05/common unit for those they don’t already own. The fear is one of a potential delisting or suspension (or both) of the 3 high yield preferred units TOO has outstanding. The A, B and E issues are off between $1.69 and $2.75/share–and that is after falling $3 bucks further earlier in the day.

LNG shipper Dynagas Partners (NYSE:DLNG) is being sued by investors for telling ‘lies’ to stockholders–it looks serious. Both high yield preferred unit issues are off around 12% and trading in the $16-$18 range.

I think most all knew these were high risk issues–and personally we hold none of them, but certainly have off and on in the past.

This is a lesson for newer preferred investors – you can always count on the shipping related issues to be some of the diciest preferreds out there–this has been the case as long as I have watched these companies (15 years). There is a reason they have coupons of 8% to near 10%. We have all had to learn these lessons–and we all continue to learn. It is not just the business model of these shippers, but most are domiciled outside the U.S. and reporting requirements may not be as stiff as they should be–too much “just trust me” from management.

21 thoughts on “TeeKay Offshore and Dynagas Preferred Units”

  1. Tim,
    Help me understand why Brookfield Business Partners (BBU) would not honor the TOO Prefs. Brookfield Asset Management (BAM) is rated Baa2 (IG) by Moody’s. They are the parent of BBU. If BBU does not honor the TOO Prefs would it not affect the BAM credit rating ?
    Oddly, BBU does not show anywhere in the Moody’s Family Tree.
    Thanks

  2. I added to TOO-E I when BPY bought a position in TOO. Seemed to me to indicate value and profitability.
    The preferred are cumulative and I can’t understand why they wouldn’t be paid as bk contra indicated by BPY .

    1. Tom, lots of fear. Brookfield could delist it, potentially depressing the price further. Some folks think Brookfield will somehow stiff the preferred shareholders. Added to that, the cyclical nature of offshore oil production is not for widows and orphans even in best of times. Anybody’s guess how this settles. I had some, flipped some today, still have some and am upside down. Need a strong stomach to play with this one.

      1. P, i added more TOO-E today. This is my kind of gamble.
        I can stand delisting as long as they pay. Being cumulative, I believe they will pay
        Tom

        1. Tom, I flipped some E bought near bottom yesterday. Now I wish I had it back. I planned to buy more this morning shortly after open but was $.07 too greedy and it ran away from me. I am mostly a conservative investor but I reserve a limit for how much of this type of thing. For me it’s 10% of my capital distributed into a minimum of 3 different holdings. I’ll hang around this one to see where it lands and have no plans to abandon at this point. Flip around a portion, heck yes. The internet is great for fear mongering and honestly I love that. I agree with your reasoning on divvy.

          1. Congrats P for the quick gains! If I only had the nerve… Usually though like you said it plummets on sell imbalance then heads back for some quick gains. Im just not strong enough mentally to play in that shipping arena.

            1. Grid, technically this one is not a shipper, but that’s beside the point, risky is the point. It is. I am stuffed full of IG paying me a pittance. I’m OK with the yield but it’s boring, so usually have a few mad money plays going. I’m still a little underwater on this one but up nicely on the basket. Fear of losing a little money won’t stop me from doing something I like. Just like betting on the Blues for thrills. You probably don’t need the money.

              1. P, its getting close enough to smell now. Win tonight and in the Finals…That 50-1 is looking better all the time! :)….I went real low today. Getting back into CNIGO for 740 shares at 26.75. About 4.3% QDI, YTM in 9/2023. But its the only true term dated I have. In the good old days it was buy in the $25s and dump in the $27s, but Im just buying to hunker down in it now as it has become impossible to get.
                Also, now you know why I dont invest in TOO. Im not smart enough to even know what it is, lol.

                1. Grid, I’m not sure of the rules of hockey. Nevertheless, I think the Blues are a sure thing to win it all. I’m not betting on it though.

                  1. CW, If I had a brain, I would drive down to Tunica and put a $5k bet on Bruins to guarantee a few thousand bones winner either way. But that isnt any fun with only $200 out of pocket….You either win the 10k or take the loss like a man! This isnt an investment, its an emotional fan journey. 🙂

  3. Here’s a little reminder for those who are trying to allocate cash at a better value, perhaps at a lower price on open buy limits:
    – I had never had to deal with thin volumes much and have had a few of those buys and sells of single digit share numbers, so I began using AON, all or none added to GTC orders, with a total cold shoulder. So I have begun breaking my target number into smaller lots that I would be willing to take and placing multiple AONs with a lower number of shares totaling my goal. I had never thought of this before and will let you know how this applies esp if there is a nice downturn.
    – Also have revisited the traditional DNR, Do Not Reduce order added to a GTC order. From Investopedia: “Investors who wish for their specified price to remain unchanged through cash distributions can do so through a DNR order. Each broker has their own way of instituting DNR orders. Oftentimes investors can filter for DNR or notify their broker that they would like to stipulate for DNR. If an investor does not request DNR then the specified order price on their GTC order will be reduced on the company’s ex-dividend date.”
    Haven’t really visited that since Series 7, but may help in this situation.
    Maybe a few small tools from the Investors Primer may help capture some marginal value in this top heavy bid up market!
    Happy Hunting! JA

    1. Joel A – Please do post if your strategy using AON in smaller amounts work…. My experience with AON orders has never been good, no matter how they’re entered… It always seems as though they’ve been entered as IGNORE instead of AON.

      1. Same here, when I asked Schwab why AON orders never seemed to get executed they said specialized orders were sent to another market maker and Schwab had no further control. Great.

        1. Me three. I see enough questionable/crazy order fulfillment as it is both filling my orders and ignoring my various orders in illiquid preferreds, that I don’t need to give them another reason to bypass it. 🙂 As an example, I had a standing GTC order to buy 100 RPT-D at 50.75 for several weeks. Standing bid for past week was above $52. Suddenly, yesterday, I had a partial fill of 38 at 50.75! I logged in immediately after I received the e-mail notification of the partial fill, and the standing bid was still above $52, and those 38 shares were the single trade all day, despite the constant bid above $52. I don’t know what combination of “AON” orders I would have had to assemble to achieve this partial fill (if I even would have received it). I have had maybe 1 or 2 “bad fills” of a small # of shares, but it doesn’t happen that often to make me change my strategy.

  4. In the case of Dlng, it is investor psychology reacting to potential managerial malfeasance. We can study business models, world markets, and company financials for an idea of company strengths. However, there is no way to evaluate beforehand the integrity of management.

    1. True, Jeff. Integrity of management was certainly missing in my journey’s with ARCP (the previous version of VER) and with KMI, amongst others. It’s sometimes very hard to know anything is stinking under the sink of these outfits until the SEC investigation announcement comes out.

  5. Crazy high yields, trashy financials, and lack of due diligence usually equals PAIN in the purse. I still like to have at least a split IG rating on my holdings, or at a minimum, financials that can be easily understood (among other qualities).

      1. My lowest rated at the moment is KMPA at Ba1.

        Once you get below IG the chance of impairment/default goes up so much that the extra yield generally isn’t worth the risk in my opinion. Unless you’re in an environment with very wide credit spreads.

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