SEAL-PA

Seapeak LLC Form 6-K Summary: Q1 2023

Business Context and Reporting Period

This Form 6-K reports the unaudited consolidated financial results for Seapeak LLC and its subsidiaries for the three months ended March 31, 2023. Seapeak is an international provider of marine transportation services focusing on liquefied natural gas (LNG) and natural gas liquids (NGL). The company operates a fleet of vessels under medium to long-term fixed-rate charters and holds interests in joint ventures.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Voyage revenues increased 14.2% to $185.2 million, driven primarily by the acquisition of Evergas in December 2022, which added significant NGL capacity.
• Profitability Surge: Net income increased 51.3% to $97.9 million. This was largely due to a $35.5 million gain on sales of vessels in 2023 compared to a $44.0 million loss in 2022. The 2023 gain included a $43.8 million gain from the commencement of a sales-type lease for the Seapeak Creole.
• Equity Income Decline: Equity income dropped 42.5% to $33.1 million, primarily due to unrealized losses on non-designated derivative instruments in joint ventures caused by decreasing long-term forward LIBOR rates.
• Interest Expense: Interest expense rose 57.8% to $47.3 million, reflecting higher LIBOR rates and the inclusion of Evergas debt, partially offset by debt repayments.
• Derivative and FX Impact: The company recorded a $5.6 million loss on non-designated derivatives and a $4.4 million foreign currency exchange loss, contrasting with gains in the prior year.

Outlook, Risks, and Management Commentary

• Liquidity Position: Management estimates sufficient liquidity to continue as a going concern for at least one year. Total liquidity was $232.2 million as of March 31, 2023. The company has a working capital deficit of $353.8 million, largely due to $440.4 million in scheduled debt maturities within 12 months, including a $220 million revolving credit facility maturing in December 2023.
• Refinancing: The company expects to refinance its revolving credit facility, citing a history of successful refinancing of similar debt.
• Capital Expenditures: Significant commitments remain for five Samsung LNG carrier newbuildings (total cost $1.2 billion) and four LPG carriers in a joint venture. Estimated remaining costs for the Samsung vessels are $970.6 million.
• Risks:
  • Geopolitical: Potential adverse impacts from the Russian invasion of Ukraine on energy markets and sanctions.
  • Interest Rates: Exposure to floating-rate debt (LIBOR/SOFR), though hedged via interest rate swaps.
  • Covenants: The Angola Joint Venture experienced debt service coverage ratio breaches but obtained a waiver in April 2023, subject to dividend withholding.
  • Tax Indemnification: A UK corporate tax rate increase is expected to increase sublease payments for the Tangguh Joint Venture by $3.6 million annually.

Investor Verification Checklist

• Debt Maturity Wall: Verify the status of refinancing for the $220 million revolving credit facility maturing in December 2023 and the $440.4 million in total debt due within 12 months.
• Derivative Valuation: Assess the impact of continued interest rate volatility on the fair value of interest rate swaps and cross-currency swaps, which contributed to significant unrealized losses in Q1 2023.
• Joint Venture Covenants: Monitor the Angola Joint Venture's compliance with debt covenants following the April 2023 waiver and the potential restriction on dividend distributions.
• Newbuilding Costs: Track progress and cost overruns on the $1.2 billion Samsung LNG carrier newbuilding program and the Exmar LPG joint venture vessels.
• Vessel Sales Proceeds: Confirm the utilization of proceeds from the sale of the Seapeak Vision (delivered April 2023) and Seapeak Unikum for debt prepayment as disclosed.