Teekay Corp has struck up a new partnership with Brookfield Business Partners that rewrites the balance sheet of MLP Teekay Offshore Partners.
The deal brings a $640m injection of capital for the daughter company, a new dominant shareholder, debts repaid or extended and the Teekay Offshore shuttle tanker business separated into a new unit.
A potential four-ship shuttle tanker newbuilding order has also been revealed.
Kenneth Hvid, chief executive of Teekay Corp, says Brookfield is a “new strategic partner and co-sponsor of Teekay Offshore” with the deal creating one of the “world’s strongest offshore marine infrastructure companies”.
“This transaction maintains the stability of Teekay Offshore’s significant forward cash flows and also improves Teekay Parent’s financial position by eliminating all of its financial guarantees to Teekay Offshore and increasing its own liquidity by approximately $140m,” he said.
“This will enhance Teekay Parent’s ability to be a supportive sponsor to all of its Daughter companies going forward.”
Investor interest
Espen Landmark Fjermestad and Peder Nicolai Jarlsby of Fearnley Securities explain the transaction frees up around $300m in equity for Teekay Offshore and turns it into a $1bn market cap company.
“Whilst Teekay Offshore is not out of the woods yet, this is a better restructuring than we had anticipated,” they said.
The analysts say the MLP’s bonds are expected to trade up, with the units potentially following. However, an accompanying reduction in distribution could make the development “less interesting for shareholders”, Fjermestad and Jarlsby said.
Attractive markets
Brookfield will inject $610m into Teekay Offshore, giving it a stake of around 60%. Teekay Corp is chipping in a further $30m and will retain a 14% slice.
Cyrus Madon, chief executive of Brookfield Business Partners, said in a statement: “Our investment represents an opportunity to acquire a high quality, highly contracted business with presence in attractive markets, and we look forward to supporting Teekay Offshore with its continued growth.”
Brookfield, which is also taking a 49% share of Teekay Offshore’s general partner, will be able to select four of the company’s nine-strong board of directors.
Following the deal, $304m in preferred units will be bought back for $250m and cancelled – a move that will save $28m per year in payouts to investors.
Brookfield is also buying a $200m inter-company loan for $140m in cash and the balance in warrants, while pushing the loan maturity out from 2019 to 2022.
Shuttle tanker order
At the same time the shuttle tanker fleet is being separated into a different unit with a new debt facilities for $600m and $71m refinancing the trading fleet.
The shuttle tanker division has booked two firm suezmax newbuildings at Samsung Heavy Industries with options for two more for delivery in 2019 and 2020. They will be employed by Statoil.
Norwegian bonds due late next year and early 2019 are also being revised.
DNB Markets advised Teekay Offshore on the transaction, while Houlihan Lokey Capital and Potter Anderson & Corroon acted as independent financial and legal advisors to Teekay Offshore’s Conflicts Committee.
Low risk investor
Established in 2016, Brookfield Business Partners acquires and manages businesses with high barriers to entry, low production costs and the potential to benefit from Brookfield’s global expertise as an owner and operator of real assets, according to a profile on its website.
It seeks long term returns of at least 15% without taking “undue risk”.
Listed in New York, Brookfield has assets of around $250bn under management. It recorded a profit of $66m in the first quarter of this year.
