|Shares Out. (in M):||70||P/E||0.0x||0.0x|
|Market Cap (in $M):||1,663||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||548||EBIT||0||0|
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We recommend an investment in Teekay Shipping (TK). We have set it up as a stub trade, but we think an outright purchase also makes sense. We believe the stub is severely mispriced for explainable but irrational reasons, has a mechanism to close the price/value gap, has downside protection, and where key decision makers are well-aligned with minority investors.
This situation creates a great risk/reward where there is a terrific upside scenario and adverse price action actually adds to the value of the stub because TK is slowly but steadily effecting the arbitrage for stub holders.
Below we lay out the basic stub math to frame the opportunity.
Parent level assets include: newbuild pre-payments on various assets, three FPSOs (Floating Production and Storage Offloading units), a collection of tanker assets, and the IDRs (Incentive Distribution Rights) associated with the three "daughter" companies (TGP, TOO, and TNK). We present the "Adjusted Stub EV" to reflect planned 2H 2011 dropdowns.
Ten years ago Teekay was simply a conventional tanker company. Through a series of acquisitions and IPOs of subsidiaries structured as or like MLPs, the company has transformed itself into a holding company that manages some tankers, has investments in MLPs, warehouses assets for its "daughter" companies, and retains the IDRs on the MLPs.
This slide from their Analyst Day in November 2010 lays out the timeline of acquisitions and IPOs:
As part of this transformation, the TK has steadily sold assets to its daughter companies and worked to clean up the parent's corporate and capital structure. As a result, the company is much more of an MLP sponsor today than a tanker company.
TK Assets Descriptions and Valuations - Severely Mispriced
Investments in subsidiaries (stubbed out):
1) Teekay LNG ($13.33 per TK share / stubbed out)
From their 20-F:
Teekay LNG Partners L.P. is an international provider of marine transportation services for liquefied natural gas (or LNG), liquefied petroleum gas (or LPG) and crude oil. We were formed in 2004 by Teekay Corporation, the world's largest owner and operator of medium sized crude oil tankers, to expand its operations in the LNG shipping sector. Our primary growth strategy focuses on expanding our fleet of LNG and LPG carriers under long-term, fixed-rate charters. We intend to continue our practice of acquiring LNG and LPG carriers as needed for approved projects only after the long-term charters for the projects have been awarded to us, rather than ordering vessels on a speculative basis. In executing our growth strategy, we may engage in vessel or business acquisitions or enter into joint ventures and partnerships with companies that may provide increased access to emerging opportunities from global expansion of the LNG and LPG sectors. We seek to leverage the expertise, relationships and reputation of Teekay Corporation and its affiliates to pursue these opportunities in the LNG and LPG sectors and may consider other opportunities to which our competitive strengths are well suited. Although we may acquire additional crude oil tankers from time to time, we view our conventional tanker fleet primarily as a source of stable cash flow as we seek to expand our LNG and LPG operations.
Our primary goal is to increase our quarterly distributions to unitholders. During the year ended December 31, 2010, we increased our quarterly distribution from $0.57 per unit to $0.60 per unit beginning with the quarterly distribution paid in May 2010. We further increased our quarterly distribution to $0.63 per unit beginning with the quarterly distribution paid in February 2011.
TGP's assets include 17 LNG carriers, 2 LPG carriers, 10 Suezmax tankers, and one handymax product tanker. TGP's remaining contract lives are 10-16 years at fixed rates with high quality counterparties like large national utilities and major oil and gas companies.
As with nearly all MLPs, TGP is focused on growing the distribution per unit. However, instead of operating domestic pipelines and processing plants, TGP operates a "floating pipeline" for natural gas. As a result of their cost of capital advantage (cheap equity via MLP market) and relationship with TK, they seem to be on the shortlist of calls to make for LNG projects.
Prospects for LNG ships have been poor in recent years as shale gas and weak energy demand reduced the need to import gas from distant places like Qatar and Australia that could compete with domestic sources on a "landed cost" basis. However, the tragedy in Japan has increased demand for imported gas and will likely have lasting effects as other countries (see German announcement) close older nuclear facilities and scrap plans for new ones.
Additionally, the development of FSRUs (Floating Storage and Regasification Units) has opened up a new market for TGP. These vessels have the ability to re-gas the LNG on ship and require less on-land infrastructure. This allows the operator (TGP's customer) to re-route ships to higher priced gas markets.
Finally, TGP will pursue on-the-water projects where a distressed owner has a long fixed contract and TGP can buy it in an accretive transaction. They did this with Exmar in 2010, and financially weak operators such as OSG and TNP own LNG ships that would make sense for TGP to buy. Additionally, a number of LNGs are owned by oil majors that could do a sale-leaseback with TGP and redeploy the capital into their core business.
TGP generally trades based on distribution yield like other MLPs. Over the last two years the yield has ranged from 5.7% to 10.6%, averaging 7.5%. I'm not particularly concerned about TGP's valuation except that a higher price / lower yield is better because it makes more transactions accretive which drives the value of IDRs (incentive distribution rights) higher. More on that later.
Below is TGP's equity issuance history. They are fully funded for all announced acquisitions and have liquidity of ~$551m as a result of the April secondary.
2) Teekay Offshore ($9.01 per TK share / stubbed out)
From their 20-F:
We are an international provider of marine transportation and storage services to the offshore oil industry. We were formed in August 2006 by Teekay Corporation, a leading provider of marine services to the global oil and natural gas industries, to further develop its operations in the offshore market. Our principal asset is Teekay Offshore Operating L.P. (or OPCO), which owns and operates a substantial majority of our shuttle tankers and floating storage and offtake (or FSO) units and all of our conventional crude oil tankers. In addition, we have direct ownership interests in two shuttle tankers, two FSO units and two floating production, storage and offloading (or FPSO) units. Our growth strategy focuses on expanding our fleet of shuttle tankers and FSO units under long-term, fixed-rate time charters. We intend to continue our practice of acquiring shuttle tankers and FSO units as needed for approved projects only after the long-term charters for the projects have been awarded to us, rather than ordering vessels on a speculative basis. We intend to follow this same practice in acquiring FPSO units, which produce and process oil offshore in addition to providing storage and offloading capabilities. We seek to capitalize on opportunities emerging from the global expansion of the offshore transportation, storage and production sectors by selectively targeting long-term, fixed-rate time charters. We may enter into joint ventures and partnerships with companies that may provide increased access to these opportunities or may engage in vessel or business acquisitions. We seek to leverage the expertise, relationships and reputation of Teekay Corporation and its affiliates to pursue these growth opportunities in the offshore sectors and may consider other opportunities to which our competitive strengths are well suited. We view our conventional tanker fleet primarily as a source of stable cash flow.
While TOO is structured as an MLP, it actually does a "check the box" election and files as an LLC. This results in a 1099 being received by shareholders instead of a K1.
TOO focuses on servicing the deepwater fields of the North Sea and Brazil. Its FPSOs are used to produce the oil, FSOs to store it, and shuttle tankers to transport it back to land for refining or shipment. Contracts are generally fixed-rate, three to ten years in duration, and with high quality counterparties like Statoil, BP, and Petrobras.
In contrast to TGP, TOO has many shuttle tanker and FPSO projects in the pipeline to drive accretive distributions as a result of high oil prices.
It's worth noting that TOO is the largest operator of shuttle tankers (31 / 88 worldwide; ~65% market share in North sea and Brazil) and the demand for shuttle tankers in Brazil is expected to be 40+ incremental ships between now and 2020. At ~$125m per vessel, this represents a $5b opportunity. If they are able to do 30% of these ships, it equates to $187.5m of asset purchases per year (important for the IDRs).
The FPSO market is more fragmented, but represents a large opportunity for newbuilds and consolidation. Below is a chart from TOO's presentation which details the newbuild opportunity. FPSO projects range in size and price, but newbuilds range from $500m to $1bn and conversions range from $250m to $600m depending on capacity. Returns on these projects are higher than shuttle tankers, so are more accretive to the distribution.
The consolidation opportunity is emphasized less for TOO than for TGP, but on-the-water projects would make sense as bolt-on acquisitions as long as they are accretive. Sevan is one notable distressed player, and other opportunities exist to buy out single-asset owners and/or sale-leasebacks with oil majors like Petrobras (who has a large FPSO fleet and significant capital needs for development).
TOO generally trades based on distribution yield. Over the last two years the yield has ranged from 6.2% to 12.6%, averaging 8.3%. Again, we're not particularly concerned about TOO's valuation except that a higher price / lower yield is better because it makes more transactions accretive which drives the value of IDRs (incentive distribution rights) higher.
Below if TOO's equity issuance history. The March offering was actually shares issued to TK (along with a cash payment) in exchange for "OpCo" which was previously a TK/TOO joint venture. As of Q2, they had $294m of liquidity that covers the first shuttle tanker delivery (~$133m done after Q2 in August 2011). They are likely to buy another shuttle tanker from TK upon delivery along with the Foinaven FPSO (which TK is obligated to offer by July 2012). My expectation is that they will wait until TOO can issue equity to consummate those transactions. If the equity markets are not available to TOO, they may wait to drop down the assets or TK could accept TOO shares as payment (along with cash).
3) Teekay Tankers ($1.63 per TK share / stubbed out)
From their 20-F:
Our business is to own oil tankers and we employ a chartering strategy that seeks to capture upside opportunities in the tanker spot market while using fixed-rate time charters to reduce downside risks. Historically, the tanker industry has experienced volatility in profitability due to changes in the supply of, and demand for, tanker capacity. Tanker supply and demand are each influenced by several factors beyond our control. We were formed in October 2007 by Teekay Corporation (NYSE: TK) (Teekay) - a leading provider of marine services to the global oil and gas industries and the world's largest operator of medium-sized oil tankers - and we completed our initial public offering in December 2007. As at March 1, 2011, we owned nine Aframax tankers and six Suezmax tankers. As of March 1, 2011, five of our Aframax tankers and three of our Suezmax tankers operated under fixed-rate time-charter contracts with our customers, of which three charter contracts are scheduled to expire in 2011, and five in 2012. The three fixed-rate contracts for the Suezmax tankers and one fixed-rate contract for the Aframax tankers include a component providing for additional revenues to us beyond the fixed hire rate when spot market rates exceed threshold amounts. Our remaining four Aframax tankers and three Suezmax tankers currently participate in an Aframax pooling arrangement and a Suezmax pooling arrangement, respectively, each managed by subsidiaries of Teekay. As of March 1, 2011, these pooling arrangements included 16 Aframax tankers and 49 Suezmax tankers, respectively. Through the participation of some of our vessels in these pooling arrangements, we expect to benefit from Teekay's reputation and the scope of its operations in increasing our cash flows. Our mix of vessels trading in the spot market or subject to fixed-rate time charters will change from time to time. Teekay currently holds a majority of the voting power of our common stock, which includes Class A common stock and Class B common stock.
TNK is a small part of the equation. It was created as a full-payout, largely spot operator and was buying assets from TK. When the tanker market was in backwardation, this worked great because they could buy assets for fair value from TK or private operators and pay out a high dividend yield. This high dividend yield attracted retail customers and allowed TNK to issue equity at a premium to NAV, creating a virtuous cycle. However, now that tanker rates have sunk to near cash break-even, TNK has sunk to (a lower) NAV. To their credit (from TK perspective), they de-levered significantly via secondaries and have not yet deployed the proceeds into more assets.
We expect TNK to look for distressed opportunities to acquire assets that allow it to pay a meaningful dividend. In the meantime, we do not concern ourselves much with TNK because of the small contribution to TK and our hedging. Additionally, we believe it trades near NAV and the full payout policy mitigates risk of poor capital allocation.
Total stubbed out value: $23.98 per TK share.
Assets sitting at the HoldCo (vs Stub EV of $549m / $7.86 per TK share)
1) Legacy Tankers ($541m / $7.75 per TK share)
Teekay has significantly reduced its exposure to traditional crude tankers by dropping down a number of vessels to TGP, TOO, TNK, and third parties. It has also re-delivered assets that were leased in as contracts roll off. We value these assets by taking TK's estimated value of tankers ($399m spot / $386m fixed based on secondary market transactions) and haircutting discounting them by 5%. Additionally, we calculated the undiscounted negative value of charter-ins relative to market rates and have factored that into our tanker valuation line. We expect TK to allow charter-ins roll off and not be replaced by new assets. This will result in improving EBITDA and earnings (~8m / yr next three years). We expect the legacy tankers to be held for now, but if we see a tanker market recovery and they can sell assets to TNK or someone else, we think they will go ahead to exit this volatile, commoditized business.
2) FPSOs ($450m / $6.44 per TK share)
TK still holds three FPSOs at the parent level (Foinaven, Petrojarl 1, and Bamf). These came to TK as part of their Petrojarl acquisition. At the time, the contracts were below market and were in the process of being re-negotiated with the customers. The Foinaven has already been re-priced and will be offered to TOO before July 2012 as per the omnibus agreement. The Petrojarl re-strikes in 2012 and the Bamf re-strikes in 2014. The Foinaven is the largest of the three and is worth ~$225m of the estimated $450m (from mgmt). This equates to ~6.5x ebitda which seems reasonable and will be the basis for dropping it down to TOO. As such, I have no reason to believe they won't get their estimated value.
3) New builds and other investments ($552m / $7.89 per TK share)
TK warehouses newbuilding projects on behalf of its subsidiaries to minimize the drag of interest and newbuilding payments that do not generate current income. When they are completed and have a contract attached (usually the contract is negotiated concurrent with the newbuild order), they are offered to the relevant subsidiary depending on the asset type and/or contract duration. TK's current newbuild advance payments are $431m all of which have long term contacts already attached. This value will be realized for some combination of cash and shares (most likely cash) upon sale or "dropdown" to the subsidiaries. Projects being supported by newbuild payments include shuttle tankers and FPSOs for TOO and LNGs and Multigas carriers for TGP. These all have contracts attached. TK will continue to warehouse projects for its subsidiaries, but they are moving toward self-funding as demonstrated by the recent order of four newbuild shuttle tankers by TOO that will be funded without the help of TK. This is a subtle but important step.
I also include $121m of JVs and other investments in this line. The majority of this is a $70m mortgage on a VLCC built in 2011 paying 9%. New VLCCs are worth ~$105m, and the loan is current.
4) Incentive Distribution Rights "IDRs" ($876m / $12.54 per TK share)
As a friend of mine likes to say, "IDRs make hedge fund managers blush". This is because the general partner of an MLP receives an increasing proportion of the cash flows as the dividend increases. They top out in the "high splits" when the GP receives 50% of the incremental distributions despite putting up 2% of the incremental capital. This makes for phenomenal returns on incremental capital. TK is on the cusp of the high splits at both TOO and TGP.
Below is a model of our estimated progression of TOO and TGP acquisitions, financing, returns on capital, coverage ratio, and the resulting cash flows to the MLP unit holders and the IDRs. The upside is very sensitive to assumptions, but the takeaway is that the value of IDRs is significant and rapidly growing.
For our valuation, we are using 2012 IDRs (we gross up the 2% contribution and treat it as an LP interest) and a 20x multiple. This may not sound particularly conservative, but public company GPs generally trade at 20-25x IDRs despite being deep in the high splits (making it harder to find accretive acquisitions) and having a high average GP take (again making the LP cost of equity higher and accretive acquisitions difficult to find). Additionally, take-private deals have been in the range of 30x IDRs. Management lists it as a $440m asset in their SotP valuation because they annualize the most recent quarter's IDRs rather than forward despite the rapid growth in income.
Omega seems to agree with me:
<Q - Adam Duarte - Omega Advisors, Inc.>:
Question is around the general partner interests. Given how close we are to reaching the high splits in those general partner interests, what's your plan for incremental dropdowns or other ways to increase that GP cash flow?
And secondly, in this uncertain world, if we feel highly confident that we can reach those high splits
in an identifiable sort of period of time, really shouldn't we be more aggressive now in buying stock
in front of that higher GP cash flow and take advantage of both the higher absolute value of those
general partners and the higher per-share value to Teekay Parent? Thanks.
<A - Peter Evensen - Chief Executive, Financial & Accounting Officer>:
Yeah, hi. So first of all, I think what we are showing is that we do have good growth in both Teekay LNG partners and Teekay Offshore partners. And as you point out, we're very close to that inflection point where we get to the 50% splits on the GP, and then the GP value up at Teekay really does start to ramp up.
And so, we're very enthusiastic about that. And so, our capital has to go toward making sure that
we continue to feed the growth into those partnerships because the greatest value creation is the
GP splits. That will give us much greater value, which we have in our sum-of-the-parts at about
But we can also create value in the short term by buying back shares, and that's something we saw
last November, which is why we announced the share buyback program and why we have been
systematically buying back shares. Because while we increase the numerator, we want to reduce
the denominator and so the short answer is we're doing both.
Total value at Parent: $26.58 per TK share (net of $7.84 of net debt).
Why is this mispriced - explainable but irrational
We believe TK is mispriced for four primary reasons:
(1) The parent and subsidiaries have different shareholder bases
(2) The tanker market is in turmoil
(3) Consolidation accounting obscures the underlying value
(4) TK has underwater charter-ins
We believe the majority of the valuation disconnect comes from the differing shareholder bases for the parent company and its subsidiaries. TOO and TGP are classified as MLPs and draw retail investors for the tax advantages (although TOO is actually a 1099 filer), high distribution yield (particularly in a low interest rate environment), and relative safety (long-term, fixed-rate contracts). This is how the stocks are covered by the sell-side and the shareholder base is largely comprised of MLP funds that have had strong inflows over the last couple years.
In contrast, TK is covered by tanker analysts on the buy- and sell-side, and because most investors cannot or choose not to short, the discount has persisted and even widened recently. We believe the recent widening is largely a result of turmoil in the tanker market. The best reflection of the weakness is probably John Fredriksen's comment in May 2011 that the tanker market would collapse in the next two years (see link below). This and the weak spot rates have caused his tanker stock (FRO) and others to experience weakness and cut dividends (OSG in particular). OSG and TK have historically been similar SotP/discount to NAV stories with investments across different shipping sectors, but OSG always kept the assets on one balance sheet instead of spreading them out and accessing cheaper sources of financing and de-leveraging like TK.
Third, TK's consolidation accounting obscures the value. Most on the sell side use EBITDA multiples to set price targets, but TK is consolidating partial stakes in high EBITDA businesses (TOO and TGP), but getting a lower multiple than they receive on the open market.
Finally, TK has some legacy charter-in tanker assets that are underwater (receiving lower rates than they are paying). These have and continue to roll-off and TK does not plan to charter-in any more tankers, instead focusing on fixed rate businesses and growing the value of the GPs associated with TOO and TGP. For now, these charter-ins generate negative EBITDA and detract from the valuation TK gets using multiples.
Stub dynamics - Mechanism to close the price/value gap
Obviously plenty of stubs don't work because the value is never unlocked. We do not believe that is the case here. We do not expect a spinoff or transformative transaction to immediately unlock the value (though we wouldn't mind it), but the company is effectively executing the stub arbitrage on the behalf of TK shareholders which is arguably better than a straight spinoff because it increases the stub value per share. The company does this by:
The charts and table below were created from TK presentations and price data. They demonstrate how TK has cleaned up the structure over time by reducing the proportion of value attributed to the parent assets and de-levering the parent balance sheet. This is important because (1) more of the value can be hedged and (2) the valuation is less sensitive to changes in the underlying asset values (Net Debt / Cap reduction).
The company has used a sum-of-the-parts slide to demonstrate the value. However, in 2008 and before, the assets were largely at the parent level, subject to market whims (more tankers and less fixed contract revenue), and more levered. As such, the stub was quite risky. We no longer think this is the case-the parent has de-levered, it is less than half of the value, and tanker assets as a portion of the parent/overall picture have been reduced.
We would point out that the valuation applied to the parent is just a calculation off of what was presented by the company over time. We value it differently, but wanted to be consistent for this table.
Below are three ways to look and think about the stub and SotP valuation.
1) Stub discount
The below chart compares the stub value at a given time (adjusted for the evolving hedge ratio as TK shares decline and TK's ownership of TNK, TOO, and TGP occasionally increase as a result of their 2% GP contribution, participation in secondaries, and/or acceptance of units for payment when selling assets). As one can see, the stub has not gone negative until recently. It's particularly surprising that the stub is negative now rather than before (if ever) because the IDRs have more value than ever and the parent company is less levered than ever.
2) Holdco Discount
Below is a look at the Holdco discount relative to management's estimate of TK. The discount has been greater in the past, but the entity was quite levered in the past (with very questionable credit markets), tanker assets were at all time highs, and more of the assets resided at the holdco rather than in hedgeable subsidiaries, so it made sense for the discount to be greater.
3) Proportion of TK directly hedgeable
For me, this is more powerful than the charts above because it shows the very high proportion of TK that is directly hedgeable in the public market. It is not an air tight arbitrage, but it's getting closer as TK continues to sell assets to the subsidiaries for cash (reducing the net debt and therefore the EV). Even the stub EV could go negative in theory, but it wouldn't make much sense.
4) Stub vs. Straight Long TK
I think the argument for TK as an outright long is a strong one. The balance sheets and liquidity liquidity are sound across entities, so there is no catastrophic risk. At TNK, we showed that it trades at approximately NAV. For one of the least leveraged companies in a depressed sector, this seems like a reasonable entry point.
At TOO and TGP the argument is a little harder to make because they trade at a premium to NAV. However, I expect them to hold up well because of their fixed rate contract coverage and relatively cheap equity cost (relative to other MLPs that are in the high splits/high average GP takes). TOO trades at a relatively high distribution yield relative to the MLP space and has a high coverage ratio of ~1.25x. It also has a number of dropdown candidates that will be significantly accretive and allow for dividend/coverage increases.TGP trades at a slightly lower distribution yield and its coverage ratio has slipped below one (0.93x MRQ), but will recover when the recently purchased assets come online.
I would argue that a new MLP at a given distribution yield and coverage ratio should almost always outperform a MLP that has been on the market for a long time. When the GP is getting 50% of incremental cash flow and 40% of the total, a 7.5% distribution yield and 1.1x coverage ratio equates to an equity cost of capital of 13.75% (7.5% x 1.1 x (1 / 60%)) while a MLP that has an average take of 10% (average of TOO/TGP for 2011/2012) has an equity cost of capital of 9.2%. This is a significant advantage when looking for accretive deals and bidding on competing projects. Additionally, TOO and TGP have less competition for projects as some of the few marine MLPs while pipeline MLPs have proliferated.
With that said, I prefer to set it up as a stub because of the improved risk/reward as shown below.
Scenario Analysis - Downside Protection
Below we lay out three scenarios that we think represent a pretty harsh downside case, a plausible base case, and an upside case. While our assumptions are ultimately arbitrary, I believe our downside case is rather punitive and we still end up with a net gain which is a nice skew of outcomes.
Another source of downside protection is the fact that TK will dropdown a set of assets to TGP and TOO in the 2H of 2011. Below we show what we expect the stub to look like after these dropdowns. Note that the net debt falls significantly and EV is even lower. TK does have more newbuilding capex to fund in the 2H, but they are obviously getting value for it as well (we ignore both entries).
I know stub equities can go negative, but when you have the EV going to near zero and management aligned with stub holders (buybacks and secondaries) I think the trade will work out over time.
Alignment of Interests
As discussed above, management has a history of effecting the stub arbitrage on our behalf by selling parent assets, doing secondaries at the subsidiaries, and buying back parent stock. Additionally, TK pays a handsome dividend of $1.265 per share (~5.3%) that is covered 1.5x by the distributions from TOO, TGP, and TNK (including the 2% GP portion, but not the IDRs).
We take particular comfort in the fact that the current CEO, Peter Evenson, was a former shipping investment banker and clearly understands how to position TK from a capital markets perspective and has (along with the board and prior CEO) steadily moved the company away from the commoditized, volatile tanker market and moved to take advantage of cheap financing in the form of MLP equity to build a platform that will be increasingly valuable.
Management and Directors own 2.8m options with an average strike price of $34.77 expiring between March 2012 and March 2020, 670k options with an average strike of $19.53, 611k shares of restricted stock, 160k of performance shares, and another ~400k shares that appear to be direct. As such, they have a strong incentive to get the stock well above $35.
Additionally, TK's largest shareholder (~42%) is the charitable trust Resolute Investments which was set up by the founder (Torben Karlshoej) and is overseen by his brother who has a board seat. The trust has not sold shares in recent years and is said to be passive, but would likely not allow management or others to impair their investment.
(1) Borrow cost and availability of subsidiaries is prohibitively high or not available
(2) TK decides to accept units in lieu of cash for a high proportion of dropdowns (or even buys them in - highly unlikely)
(3) MLP investors lose appetite for new issuance and TK parent cannot release the capital invested in projects and/or the IDR value is less than we expect
(4) TK tries to call the bottom of the tanker market and fails. They have been consistent that they are no longer interested in spot tankers, but it remains a risk.
(1) Further buybacks at TK
(2) Dropdowns to release capital at TK Parent
(3) Non-dropdown acquisitions by daughter companies to drive IDR value
(4) Moving in to the "high splits" in the IDRs
(5) Underwater Charter-ins rolling off (steadily through 2014) will show significant EBITDA improvement
(6) Potential buyout of TK (Kinder Morgan GP LBO was a home run)
(7) Eventual buy-in of IDRs by subsidiaries
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