Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter and nine months ended September 30, 2013
Business Overview: The Company owns and operates crude oil and product tankers. As of November 1, 2013, the fleet consisted of 29 vessels (28 owned, 1 chartered-in), with 13 on fixed-rate time charters and 16 operating in the spot market via pooling arrangements.
Key Financial Metrics
| Metric (in thousands USD) | 3 Months Ended Sep 30, 2013 | 9 Months Ended Sep 30, 2013 | 9 Months Ended Sep 30, 2012 |
|---|---|---|---|
| Total Revenues | $39,479 | $127,924 | $151,936 |
| Net Loss | $(14,591) | $(22,268) | $(13,612) |
| Net Loss Attributable to Common Stockholders | $(14,591) | $(22,268) | $(4,449) |
| Loss Per Share (Basic & Diluted) | $(0.17) | $(0.27) | $(0.06) |
| Operating Cash Flow | N/A | $320 | $21,570 |
| Cash and Cash Equivalents (Sep 30, 2013) | $29,168 | ||
| Total Liquidity (Cash + Undrawn Credit) | $226.1 million | ||
| Total Debt (Current + Long-term) | $746.2 million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 14% for the nine months ended September 30, 2013, compared to the prior year. This was driven by lower spot rates for Suezmax and Aframax tankers, a shift of vessels from fixed-rate time charters to lower-yielding spot voyages, and a cessation of interest income from defaulted term loans.
- Increased Net Loss: The net loss for the nine months ended September 30, 2013, widened to $22.3 million from $13.6 million in the prior year. The primary driver was a $14.9 million loss provision on investments in term loans, which were in default.
- Operating Expenses: Vessel operating expenses decreased slightly ($69.7 million vs. $71.1 million) due to the sale of the Nassau Spirit in January 2013. However, General and Administrative expenses increased significantly ($10.2 million vs. $5.6 million) due to higher management fees for a larger fleet and accelerated stock-based compensation recognition.
- Depreciation: Depreciation and amortization expenses dropped to $35.7 million from $53.9 million, largely due to asset impairment charges recorded in late 2012 that reduced the depreciable base.
Guidance, Outlook, Risks, and Unusual Items
Unusual Items and Contingencies
- Defaulted Term Loans: The Company invested $115.6 million in two term loans secured by VLCCs that matured in July 2013. Borrowers defaulted on interest and principal. The Company recorded a $14.9 million loss provision for the nine months ended September 30, 2013. One collateral vessel is trading under the Company's management; the other remains detained in Egypt.
- STX Newbuilding Dispute: The Company ordered four LR2 product tankers from STX Offshore & Shipbuilding Co., Ltd. in April 2013. STX entered financial restructuring and failed to provide refund guarantees. The Company has not made payments and is evaluating legal action for damages. Subsequent events indicate STX breached option agreements for additional vessels ordered in October and November 2013.
Outlook and Management Commentary
- Market Conditions: Crude tanker spot rates improved slightly in Q3 2013 but remain historically low. Global fleet growth is expected to be minimal (2.5% in 2013), but demand growth is forecast to moderate.
- Liquidity: Management believes existing cash, operating cash flows, and undrawn credit facilities ($196.9 million available) are sufficient to meet liquidity needs for the next 12 months.
- Dividends: The Company pays a fixed quarterly dividend of $0.03 per share, subject to Board review.
Investor Verification Checklist
- Recovery of Term Loans: Verify the status of the detained VLCC in Egypt and the estimated recoverable value of the two defaulted loans ($114.1 million carrying value).
- STX Legal Action: Monitor the outcome of potential legal proceedings against STX regarding the breach of newbuilding contracts and refund guarantees.
- Debt Covenants: Confirm continued compliance with hull coverage ratios and liquidity covenants, particularly given the volatility in vessel values and the impact of the defaulted loans.
- Spot Rate Exposure: Assess the impact of low spot market rates on the 16 vessels currently operating in the spot market versus the 13 on fixed-rate charters.