On the strength of a buoyant rates market, New York-listed Teekay Tankers can now claim to be net-debt free as it contemplates how it will buy out a remaining $208m obligation in lease financing.
Chief financial officer Stewart Andrade revealed the net-debt milestone on an earnings call with equity analysts on Thursday, saying the figure had been $28.5m at the end of the second quarter but since extinguished by strong cash flows in the current reporting period.
In reporting strong second-quarter earnings, Teekay also flagged up plans to buy out four lease-financed tankers in September for $57.2m.
But under questioning from Jefferies lead shipping analyst Omar Nokta, Andrade said it had not yet been decided whether Teekay would use cash on the balance sheet or rather dip into a $350m credit facility.
“It will depend on how the next quarter goes, whether we use cash on hand or the revolver,” Andrade told Nokta.
“It depends on whether we have sufficient cash in the bank. Those vessels will go into that facility, but whether we draw on it will depend on the spot market.”
Remaining lease obligations totalling $150m could be exercised as soon as the first quarter of 2024, although Andrade said: “We haven’t made a decision on whether to exercise those in the first quarter,” again adding that it would depend on the market.
Having worked aggressively to pay down debt, Teekay is now facing questions about how it will return capital to shareholders.
It took a step in that direction last quarter, when the owner installed a $0.25 quarterly dividend, while saying special dividends and share buybacks would also be arrows in the quiver.
Analysts are expecting a return to a strong winter market for tankers this year. That led analyst Jonathan Chappell of Evercore ISI to question whether that might be enough to trigger a special payout or an increase in the regular dividend.
Andrade was cautious in his reply, saying “I wouldn’t expect a change in the near term… we’ll wait to see how the next few quarters unfold.”
The CFO went on to add: “Our number one priority is to make investments in the fleet — we haven’t acquired a tanker since 2017.”
Chappell noted management’s caution in a client note following the call.
“Management remains somewhat non-committal to the immediate-term use of its building liquidity. Yes, TNK’s fleet is ageing and renewals will be important at some point in the near future; however, asset values are also near record highs and TNK has a track record of disciplined fleet additions,” Chappell wrote, using Teekay’s ticker symbol.
He posited that special dividends may become more common in the coming quarters, likely narrowing Teekay’s current 34% trading discount to year-end net asset value estimates.
