Seapeak LLC annual report, Q4 FY2020

Business context and reporting period

The supplied filing is Teekay LNG Partners L.P.’s Form 20-F annual report for the fiscal year ended December 31, 2020, filed April 1, 2021. It is not a quarterly report. The request identifies Seapeak LLC, but the filing names Teekay LNG Partners L.P.; confirm the intended issuer. The partnership provides LNG and LPG marine transportation, primarily under medium- to long-term charters, and held interests in 47 LNG carriers, 30 LPG/multi-gas carriers and a Bahrain LNG terminal at year-end.

Financial and operating performance

Revenue declined 1.7%, income from vessel operations fell 24.5%, and net income fell 40.9% year over year. The corresponding income-from-vessel-operations and net-income margins were approximately 38% and 16% in 2020, versus 50% and 27% in 2019. Operating cash flow increased substantially, in part because $274.6 million of receipts from direct financing and sales-type leases were reported as operating cash inflows under the applicable lease accounting. Financing activities used $607.4 million; investing activities used $1.5 million.

Year-end working capital was negative $259.1 million, mainly reflecting $250.5 million of debt classified as current. The partnership reported $254.8 million of undrawn revolver capacity and was in compliance with its own debt covenants at year-end. Cash-flow coverage and liquidity should be considered alongside scheduled maturities, debt service, distributions and restricted cash.

Material changes versus 2019

• Operating income was lower, primarily reflecting a $51.0 million impairment of seven wholly owned multi-gas carriers, vessel sales, higher vessel operating and general and administrative expenses, and lower Bahrain Spirit rates. Fewer off-hire days partly offset these items.
• Equity income increased to $72.2 million from $58.8 million, helped by LNG vessel deliveries and Bahrain terminal payments, but partly offset by $17.0 million of impairment charges on four LPG carriers in the Exmar joint venture and higher credit-loss provisions.
• Interest expense declined to $132.8 million from $164.5 million, mainly due to lower LIBOR and reduced debt balances. Derivative losses increased to $33.3 million from $13.4 million; foreign-exchange losses were $21.4 million versus $9.6 million.
• The partnership adopted the expected-credit-loss accounting standard in 2020, recording a $51.9 million reduction to opening partners’ equity. Year-end allowance for credit losses was $91.9 million across the disclosed categories.
• In May 2020, the partnership eliminated incentive distribution rights in exchange for 10.75 million newly issued common units. It repurchased 1.37 million common units for $15.3 million during the year.
• It issued NOK 1 billion of senior unsecured bonds in September 2020, equivalent to $112.0 million, with interest and principal swapped into U.S. dollars at a fixed 5.74% rate.

Outlook, commentary, risks and unusual items

Management stated that liquidity, expected operating cash flow, expected joint-venture distributions and anticipated refinancing were expected to fund the partnership’s needs for at least one year after filing. This depended in part on refinancing or repayment of near-term obligations. A February 2021 refinancing extended a $191.5 million term loan to February 2026; the filing also cites bonds maturing in 2021 and 2022 as refinancing or repayment needs.

In February 2021, management announced a planned 15% increase in quarterly common distributions, from $0.25 to $0.2875 per unit, beginning with the first-quarter 2021 distribution. The distribution is discretionary and subject to available cash, reserves, debt restrictions and other conditions. The filing reports no material COVID-19-related business interruption or material cash-flow impact in 2020, but identifies crew costs, maintenance delays, vessel values and customer or project disruption as continuing uncertainties.

• Key risks include charter renewals and expirations, spot-market exposure, customer concentration, vessel impairments, substantial debt and refinancing needs, covenant restrictions, joint-venture dependence and guarantees, and possible limits on distributions.
• COVID-19, geopolitical events, sanctions, energy-market changes, labor and crewing issues, environmental and emissions rules, ballast-water upgrades, cyber risks, and LIBOR transition could affect operations, costs, financing or demand.
• Two MALT joint-venture LNG charters to Yemen LNG remained suspended until early 2022; the vessels were employed on short-term contracts at year-end. The Bahrain terminal began receiving use payments in 2020, while certain lender-related handover arrangements remained outstanding.
• Unusual non-cash and valuation items include the $51.0 million multi-gas impairment, credit-loss provisions, and volatile derivative and foreign-currency results. KPMG issued unqualified opinions on the financial statements and internal controls; management also reported controls effective at year-end.

Important facts for investors to verify

• Confirm whether this Teekay LNG Partners filing is the intended filing for the requested Seapeak LLC and whether the relevant period is fiscal 2020 rather than Q4 2020.
• Review the composition and timing of operating cash flow, particularly direct-financing and sales-type lease receipts, and assess recurring cash generation against distributions and debt service.
• Verify refinancing progress and maturities, available revolving capacity, covenant headroom, and the effect of finance-lease purchase obligations and joint-venture guarantees.
• Assess the assumptions behind the $51.0 million vessel impairment and credit-loss allowances, including estimated charter-free vessel values and future charter rates.
• Confirm that announced distribution increases were implemented and remain supportable after maintenance capital spending, dry-docking, and debt requirements.
• Monitor charter expirations, redeployment outcomes, customer credit, Yemen LNG status, and the Bahrain terminal’s operating and financing conditions.