Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter and six months ended June 30, 2016
Business Overview: The Company owns and operates crude oil and product tankers. As of June 30, 2016, the fleet consisted of 60 vessels, including 52 owned, 8 chartered-in, and a 50% interest in one VLCC. Operations are divided into two segments: Conventional Tankers and Ship-to-Ship (STS) Transfer.
Key Financial Metrics
| Metric (in thousands USD) | 3 Months Ended Jun 30, 2016 |
3 Months Ended Jun 30, 2015 |
6 Months Ended Jun 30, 2016 |
6 Months Ended Jun 30, 2015 |
|---|---|---|---|---|
| Total Revenues | $139,621 | $111,283 | $304,571 | $218,806 |
| Net Income | $22,486 | $45,150 | $61,466 | $85,126 |
| Net Income Per Share (Diluted) | $0.14 | $0.38 | $0.39 | $0.72 |
| Operating Cash Flow | N/A | N/A | $103,593 | $90,913 |
| Cash and Cash Equivalents | $58,018 | $83,082 | $58,018 | $83,082 |
| Total Debt (Principal) | $1,054,708 | N/A | $1,054,708 | N/A |
| Total Liquidity | $93,000 | N/A | $93,000 | N/A |
Note: Liquidity includes cash, cash equivalents, and undrawn credit facilities.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 25.4% year-over-year for the six months ended June 30, 2016. This was driven by the addition of 12 Suezmax tankers acquired in late 2015, the inclusion of the STS transfer business acquired in July 2015, and fewer off-hire days.
- Profitability Decline: Net income decreased 27.8% for the six-month period to $61.5 million. This decline was primarily due to a $6.4 million asset impairment charge, a $11.5 million loss on derivative instruments, and higher interest expenses ($15.6 million vs. $5.7 million) related to new debt facilities.
- Asset Impairment: The Company recorded a $6.4 million write-down of one Medium Range (MR) tanker classified as held for sale.
- Derivative Losses: Realized and unrealized losses on derivative instruments totaled $11.5 million for the six months ended June 30, 2016, compared to a loss of $1.1 million in the prior year period. This includes losses on interest rate swaps and a stock purchase warrant.
- Debt Refinancing: In January 2016, the Company entered into a new $894.4 million long-term debt facility to refinance bridge loans and existing credit facilities.
Guidance, Outlook, and Risks
- Market Outlook: Management expects lower seasonal freight rates to persist through the third quarter of 2016, with an anticipated uptick during winter months due to increased oil demand. Global oil demand growth is forecast at 1.4 million barrels per day for 2016.
- Dividend Policy: Commencing Q1 2016, the Company adopted a policy to pay quarterly dividends ranging from 30% to 50% of quarterly adjusted net income, with a minimum of $0.03 per share. A dividend of $0.09 per share was declared for the quarter ended June 30, 2016.
- Legal Contingency (STX): The Company obtained a court order requiring STX Offshore & Shipbuilding Co., Ltd. to pay $32.4 million in damages regarding repudiated shipbuilding contracts. However, STX has filed for bankruptcy protection, staying enforcement actions in Korea. No receivable has been recorded due to collection uncertainty.
- Liquidity: The Company maintains total liquidity of $93.0 million and is in compliance with all debt covenants, including hull coverage ratios and minimum liquidity requirements.
Investor Verification Checklist
- STX Litigation Recovery: Verify the status of enforcement actions against STX and the likelihood of collecting the $32.4 million award given the bankruptcy stay.
- Derivative Exposure: Review the impact of interest rate swaps and the time-charter swap on future earnings, noting the $11.5 million loss in the current period.
- Asset Sales: Confirm the completion and final proceeds of the sale of the MR tanker (Teesta Spirit) classified as held for sale.
- Debt Covenants: Monitor compliance with hull coverage ratios (currently 148% for the new facility) as vessel values are sensitive to market conditions.
- Dividend Sustainability: Assess the ability to maintain the new dividend policy (30-50% of adjusted net income) given the volatility in spot market rates and derivative losses.