Teekay Offshore gets significant investment

Jul 28 2017

Teekay Corp and Teekay Offshore Partners have signed a financing deal with Brookfield Business Partners, together with its institutional partners.

The deal includes a $640 mill equity investment and other financing initiatives, detailed below.

• Brookfield and Teekay will invest $610 mill and $30 mill, respectively, in Teekay Offshore at a price of $2.50 per common unit and receive 65.5 mill Teekay Offshore warrants on a pro rata basis. Following the investment, Brookfield will own around 60% and Teekay will own about 14% of the common units of Teekay Offshore.

• Brookfield will acquire from Teekay Parent both a 49% interest in Teekay Offshore GP (TOO GP) and an option to acquire an additional 2% of TOO GP. On closing, Brookfield will have the right to elect four members to TOO GP’s nine-member board.

• Teekay Offshore will repurchase and cancel all $304 mill of the outstanding Series C-1 and Series D preferred units from the existing unit holders for an aggregate amount of about $250 mill in cash, which will save around $28 mill in annual distributions.

• Teekay Offshore has reached agreement in principle with the lenders of the ‘Arendal Spirit UMS debt facility to extend the mandatory pre-payment date out to 30th September, 2018, in exchange for a certain principal pre-payment, subject to receipt of lenders' final internal approvals.

• Brookfield will acquire from Teekay Parent an existing $200 mill inter-company loan previously extended to Teekay Offshore in exchange for $140 mill in cash and 11.4 mill of the warrants to be issued to Brookfield, which has agreed to extend the maturity date of the inter-company loan from 2019 to 2022.

• Teekay Offshore will transfer its shuttle tanker business into a new, wholly-owned, non-recourse subsidiary, Teekay Shuttle Tankers (ShuttleCo). As part of the formation of ShuttleCo, a majority of Teekay Offshore's shuttle tanker fleet will be refinanced with a new $600 mill, five-year debt facility, and two 50%-owned vessels will be refinanced with a new $71 mill, four-year debt facility. In addition, an existing $250 mill debt facility secured by the three East Coast Canada newbuildings, and an existing $143 mill private placement project bond financing secured by two vessels, will be transferred from Teekay Offshore to ShuttleCo.

• A significant part of Teekay Offshore's NOK bond series, due to mature in late-2018 and early-2019 is expected to be repurchased with proceeds from a new five-year, up to $250 mill US dollar denominated bond offering by ShuttleCo in the Norwegian bond market.

• Certain financial institutions providing interest rate swaps to Teekay Offshore have agreed to (i) lower the fixed interest rate on the swaps, (ii) extend the termination option of the swaps by two years to 2021, and (iii) eliminate the financial guarantee and security package currently provided by Teekay Parent in return for a certain prepayment amount and fee.

"We are excited to have Brookfield join us as a strategic partner and co-sponsor of Teekay Offshore, which is a strong endorsement of Teekay Offshore's leading market positions in the marine infrastructure space," said Kenneth Hvid, Teekay's President and CEO. "The combination of Teekay's operational platform and Brookfield's global business platform and access to long-term capital is a complementary fit and creates one of the world's strongest offshore marine infrastructure companies. Out of the range of alternatives evaluated, we believe this comprehensive solution represents the best possible outcome for all of our long-term stakeholders and positions Teekay Offshore to benefit from an energy market recovery.

“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 $140 mill. This will enhance Teekay Parent's ability to be a supportive sponsor to all of its Daughter companies going forward," he said.

"Brookfield's co-sponsorship in Teekay Offshore provides both immediate and long-term benefits," said Ingvild Sæther, President and CEO of Teekay Offshore Group. "This transaction fully finances Teekay Offshore's existing growth projects which, when delivered over the next few quarters, are expected to contribute an incremental $200 mill of run-rate annual cash flow from vessel operations.

“Longer-term, the co-sponsorship of Brookfield and Teekay will provide greater access to capital, which will enable Teekay Offshore to better service its customers and take advantage of future growth opportunities as the global energy markets recover. Our recent order of shuttle tanker newbuildings to service Teekay Offshore's North Sea Master Agreement with Statoil is just one example of the customer demand we are already seeing for our offshore production and logistics services," he said.

"Teekay Offshore has established itself as a global leader in the provision of marine services to the offshore oil production industry," said Cyrus Madon, Brookfield Business Partners CEO. "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."

In addition to the forming of ShuttleCo, Teekay Offshore has entered into conditional shipbuilding contracts with Samsung Heavy Industries to construct two Suezmax-size, DP2 shuttle tankers, with options to order up to two additional vessels.

These newbuilding vessels will be constructed based on the Partnership's ‘New Shuttle Spirit design, which incorporates technologies to increase fuel efficiency and reduce emissions, including LNG propulsion technology. Upon delivery in 2019 and 2020, the new vessels will operate in the North Sea under the Partnership's existing Master Agreement with Statoil, which will free up required vessel capacity to service Teekay Offshore's contract of affreightment (CoA) portfolio in the North Sea.

Closing of the transactions is expected to occur in the third quarter of 2017.

DNB Markets acted as global co-ordinator and financial advisor to Teekay Offshore. Houlihan Lokey Capital and Potter Anderson & Corroon acted as independent financial and legal advisors to Teekay Offshore's Conflicts Committee.


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