SEAL-PA

Business Context and Reporting Period

Company: Teekay LNG Partners L.P. (NYSE: TGP)

Filing Type: Form 6-K (Report of Foreign Private Issuer)

Reporting Period: First Quarter ended March 31, 2020

Date of Report: May 21, 2020

Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The fleet consists of 47 LNG carriers and 30 LPG/Multi-gas carriers (owned and in-chartered), with ownership interests ranging from 20% to 100%. The Partnership also holds a 30% interest in an LNG regasification terminal in Bahrain.

Key Financial Metrics

Liquidity Composition (March 31, 2020): $312.7 million in cash and cash equivalents and $60.0 million in undrawn credit facilities.

Material Changes vs. Prior Period

• GAAP Loss vs. Profit: The Partnership reported a GAAP net loss of $33.0 million in Q1 2020 compared to a net income of $21.6 million in Q1 2019. This was primarily driven by a $45.0 million non-cash write-down of six multi-gas carriers, unrealized credit loss provisions due to the adoption of ASC 326, and higher unrealized losses on non-designated derivative instruments.
• Adjusted EBITDA Growth: Total Adjusted EBITDA increased nearly 20% to $188.4 million, a quarterly record high. This growth was driven by earnings from six new LNG carrier deliveries in 2019, commencement of terminal use payments in the Bahrain LNG Joint Venture, and higher charter rates in the MALT and Exmar LPG Joint Ventures.
• Segment Performance: The LNG segment remained profitable, while the LPG segment reported a loss from vessel operations of $(45.4) million due to the aforementioned write-downs, partially offset by improved operational results (fewer off-hire days).
• Asset Sales: Earnings were reduced by the sale of the WilForce and WilPride LNG carriers in January 2020.

Guidance, Outlook, and Management Commentary

• Guidance Reaffirmed: Management reaffirmed fiscal 2020 adjusted net income guidance, projecting an increase of approximately 48% over 2019 (mid-point range of $230-$270 million).
• Charter Coverage: The LNG fleet is 100% chartered on fixed-rate contracts for the remainder of 2020 and 94% covered for 2021. Recent charters include the Marib Spirit, Arwa Spirit, and Methane Spirit.
• Capital Allocation: The Partnership executed a 32% increase in quarterly cash distributions to common unitholders in May 2020. Additionally, all incentive distribution rights held by the General Partner were eliminated in exchange for 10.75 million newly-issued common units.
• Debt Management: In March 2020, the Partnership refinanced its $225 million unsecured revolving credit facility for two years at the same pricing (LIBOR + 140 bps). Management stated they are well-positioned to meet debt maturities without accessing public capital markets until late 2021.
• COVID-19 Impact: Management noted that long-term contract cover has minimized the impact of global events on operations and cash flows, though health and safety protocols for seafarers remain a priority.

Investor Verification Checklist

• Write-down Justification: Verify the fair value assessment and future outlook for the six multi-gas carriers written down by $45 million.
• Derivative Exposure: Review the reconciliation of unrealized losses on non-designated derivative instruments ($20.5 million in Q1 2020) and their impact on future volatility.
• Joint Venture Performance: Confirm the operational status and cash flow distribution timing of equity-accounted joint ventures (MALT, Yamal, Exmar, Bahrain), which contributed significantly to Adjusted EBITDA.
• Liquidity Runway: Assess the sufficiency of the $372.7 million liquidity position against upcoming debt maturities and capital expenditure requirements.
• Charter Renewals: Monitor the execution of new charters for vessels expiring in 2021 to maintain the 94% coverage rate.