Teekay Tankers sees stronger fourth quarter

Nov 29 2019

Teekay Tanker has reported GAAP net loss of $19.9 mill and an adjusted net loss of $21.2 mill for the third quarter of 2019.

Total Adjusted EBITDA was $27.8 mill.

The Teekay Corp daughter entity has secured strong 4Q19 to-date spot tanker rates of $38,000 and $30,500 on average per day for its Suezmax and Aframax fleet, an increase of 133% and 105%, respectively, compared to 3Q19.

About 90% of Teekay Tankers’ fleet is currently trading in the spot tanker market; every $5,000 per day increase in spot tanker rates results in around $95 mill in additional annual net income, the company claimed.

Kevin Mackay, Teekay Tankers’ President and CEO, said: “As expected, crude spot tanker rates declined from the second to the third quarter of 2019, mainly due to normal seasonality. Crude spot tanker rates subsequently began to firm in September, 2019 on the back of stronger market fundamentals.

“Against that supportive fundamental backdrop, a series of market events in late-September and into October, 2019 drove rates to the highest levels since the peak of the super cycle in 2008. Teekay Tankers has been able to benefit from this strengthening tanker market as evidenced by the strong Suezmax and Aframax tanker rates we have secured in the fourth quarter of 2019 to-date, which have so far averaged around 133% and 105% higher than rates we earned in the third quarter of 2019, respectively.

Looking ahead, as the strong underlying supply and demand fundamentals persist, we continue to have a positive view of the tanker market into the winter months and 2020.

“Last year and in early-2019, after consideration of various alternatives, Teekay Tankers entered into several higher-cost sale-leaseback transactions to bolster its liquidity position during a period of pronounced weakness in the tanker market, which enabled us to avoid issuing dilutive common equity or selling assets at less than optimal trough valuations, but resulted in increasing our balance sheet leverage and our overall cost of capital.

“Therefore, we believe that the most prudent and accretive allocation of our capital at this time is to transition away from our current earnings-based formulaic dividend policy and to instead allocate our growing cash flows towards reducing our financial leverage, which will further build net asset value and reduce our cost of capital.

“We also believe that having a strong balance sheet should help to narrow the valuation gap between our share price and our net asset value, which would further contribute directly to shareholder returns. As our balance sheet delevers, Teekay Tankers believes that it will ultimately have greater financial flexibility to allocate capital towards a variety of uses, including returning capital to shareholders through dividends and/or share repurchases and potential vessel acquisitions at attractive times in the tanker cycle.

“However, given our current strong market position and significant operating leverage, we do not intend to acquire vessels at this time but instead, may seek to crystallise vessel values and further accelerate our balance sheet delevering by opportunistically selling some of our existing assets as values continue to strengthen.

“To improve the marketability of Teekay Tankers’ shares to a broader base of potential investors, we have decided to increase the market price of the company’s common shares through a one-for-eight reverse stock split. This change is expected to take effect at the opening of the market on 25th November, 2019,” he said.

Addressing IMO2020, Mackay said, “On 1st January, 2020, the shipping industry will move to a new emissions standard based on 0.5% sulfur fuel. Teekay Tankers fully supports the use of cleaner burning fuels across the industry as it aligns directly with our core value of sustainability.

“Our journey towards ensuring compliance with these new regulations has been three years in the making and having commenced purchasing these lower sulfur, cleaner burning fuels in recent weeks, we are confident that our extensive preparations will result in a seamless transition to operating with the new fuel standard.

“With significant operating leverage, expected increases in asset values and the potential to close the valuation gap, we believe that Teekay Tankers is one of the best positioned companies in our sector to create shareholder value both in the near-term and over time,” he said.

In October, Teekay Tankers entered into one-year timecharter-out contracts for three Suezmaxes at an average rate of about $37,500 per day, two of which commenced in mid-October, 2019 and one in early-November, 2019.

This month, the company signed a term sheet to refinance 36 vessels with a new five-year, $595 mill revolving credit facility. When completed, the facility will replace three of Teekay Tankers' existing loan facilities that currently have an aggregate availability of $510 mill, of which $495 mill was drawn. The new facility, which will have substantially similar terms and will extend balloon maturities from 2020/2021 until late-2024, is expected to be completed in December 2019.


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