Teekay Tankers Ltd. — 2013 Form 20-F Summary
Business context and reporting period
This is an annual Form 20-F for the fiscal year ended December 31, 2013, filed April 30, 2014; it is not a standalone fourth-quarter filing. Teekay Tankers owns and operates crude-oil and product tankers, using a mix of fixed-rate time charters, spot voyages, and Teekay-managed pooling arrangements. At year-end, the fleet comprised 29 vessels: 27 owned, one chartered-in and one 50%-owned VLCC, with approximately 3.7 million deadweight tonnes of capacity.
The financial statements are prepared under U.S. GAAP. Prior periods include retroactive results of vessels acquired from Teekay Corporation under common-control accounting, which may affect comparability.
Key financial metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenues | $170.1 million | $197.4 million |
| Net revenues, excluding voyage expenses | $161.8 million | $192.8 million |
| Income from operations | $3.4 million | $(340.2) million |
| Net loss | $(8.1) million | $(370.2) million |
| Basic and diluted loss per share | $(0.10) | $(4.54) |
| EBITDA | $49.6 million | $(277.9) million |
| Adjusted EBITDA | $53.0 million | $82.7 million |
| Cash flow from operating activities | $6.2 million | $27.5 million |
| Cash and cash equivalents | $25.6 million | $26.3 million |
| Total debt | $744.6 million | $735.7 million |
| Total liquidity, including undrawn facilities | $173.8 million | $327.3 million |
| Total equity | $284.7 million | $302.2 million |
Reported operating margin was approximately 2.0% of total revenues and net margin was approximately negative 4.8%. Adjusted EBITDA declined to $53.0 million from $82.7 million, despite the absence of the large 2012 impairment charge. Total debt includes current and long-term debt; the filing also reports $148.2 million of undrawn revolving credit capacity at December 31, 2013.
Material changes versus the prior comparable period
- Net revenues declined approximately 16% to $161.8 million, primarily because of lower realized Suezmax and Aframax rates, changes in vessel employment, the sale of the Nassau Spirit, lower interest income on term loans, higher pool fees and commissions, and more off-hire days.
- Total TCE declined to approximately $15,861 per revenue day from $18,091. Suezmax voyage-charter TCE decreased to $13,550 from $17,688, while MR product and LR2 product tanker performance improved.
- Operating results improved sharply because 2012 included a $352.5 million vessel impairment and net loss on sale. The 2013 charge was only $0.1 million, related to the sale of the Nassau Spirit.
- Vessel operating expenses decreased to $91.7 million from $96.2 million, while general and administrative expenses increased to $12.6 million from $8.0 million, mainly because of higher administrative and strategic fees.
- Interest expense decreased to $10.0 million from $20.0 million, largely because higher-cost predecessor debt was replaced with lower-cost revolving facilities and debt levels were reduced.
- Operating cash flow fell to $6.2 million from $27.5 million. The decline reflected lower TCE rates, higher voyage and administrative expenses, reduced term-loan interest receipts and seven dry dockings versus four in 2012.
- The company changed from a variable cash-distribution policy to a fixed quarterly dividend of $0.03 per share, or $0.12 annually, beginning in the first quarter of 2013. Dividends declared declined to $10.0 million from $32.2 million.
Liquidity, debt and commitments
- Long-term debt was $744.6 million, including $580.6 million under revolving credit facilities and $164.0 million under term loans. Principal repayments were scheduled at $25.2 million in 2014, $83.6 million in 2015, $108.1 million in 2016, $415.3 million in 2017, $53.1 million in 2018 and $59.3 million thereafter.
- The primary revolving credit facility had an outstanding balance of $509.0 million and is repayable in full in November 2017. Management noted that refinancing may depend on a recovery in tanker markets.
- The company and Teekay were in compliance with all debt covenants at December 31, 2013. Vessel-value covenants require minimum collateral coverage ratios generally ranging from 105% to 120%; further market deterioration could require additional collateral or create covenant pressure.
- Contractual obligations totaled approximately $749.2 million, comprising $744.6 million of long-term debt and $4.6 million of charter-in obligations, excluding expected interest payments.
- Cash was substantially unchanged year over year, but total liquidity declined materially because of lower undrawn facility availability and debt maturities.
Guidance, outlook, management commentary and unusual items
- No formal earnings guidance was provided. Management described tanker markets as cyclically weak for most of 2013, although large-crude tanker rates rebounded to multi-year highs in the fourth quarter.
- Management forecast 2014 global tanker fleet growth of approximately 1.2%, with growth weighted toward MR and LR2 product tankers and negligible or declining growth in crude Aframax and Suezmax segments. Global oil demand was expected to grow by approximately 1.2 million barrels per day, but lower OPEC production could reduce crude tanker tonne-mile demand.
- Approximately 46.3% of 2013 net revenues came from spot-market vessels, increasing exposure to volatile charter rates. Thirteen vessels were under fixed-rate charters at year-end; six contracts were scheduled to expire in 2014, four in 2015 and three in 2016.
- The borrowers on two term loans secured by two 2010-built VLCCs defaulted on interest in the first quarter of 2013 and on principal in July 2013. The company took over management of the vessels during 2013 and assumed ownership of both vessels in March 2014 in satisfaction of the loans and accrued interest.
- The company terminated STX shipbuilding agreements for four firm and eight option LR2 newbuildings after STX failed to provide required refund guarantees. The company commenced legal action for damages in February 2014; the outcome and any recovery are uncertain.
- In January 2014, the company invested $25 million in Tanker Investments Limited. Its ownership was diluted to 6.51% after TIL’s subsequent equity issuance and listing.
- In April 2014, the boards agreed to a proposed approximately $15.6 million acquisition from Teekay, payable in Class B shares, representing 50% of Teekay’s conventional tanker commercial operations and 100% of its technical management operations. Completion was expected in the second quarter of 2014.
- Key risks include tanker-market cyclicality, spot-rate volatility, vessel impairments, refinancing and covenant risk, interest-rate exposure, environmental and regulatory costs, piracy and geopolitical disruption, dependence on Teekay for management and pooling, related-party conflicts, and the controlling voting position of Teekay Corporation.
Most important facts for investors to verify
- Whether the projected tanker-market recovery materializes before the substantial 2017 debt maturities and whether refinancing remains available on acceptable terms.
- The recoverability and ultimate value of the two VLCCs taken over from defaulted borrowers, including operating performance, sale proceeds and related legal or operational liabilities.
- The status, potential recovery and legal costs associated with the terminated STX shipbuilding contracts.
- The effect of expiring fixed-rate charters and the proportion of the fleet that will be exposed to spot rates in 2014 and thereafter.
- Compliance with vessel-value, liquidity and other debt covenants if tanker values or charter rates weaken.
- The financial and governance implications of the proposed Teekay operations acquisition, related-party fees and Teekay’s controlling voting power.
- Future impairment risk: as of February 1, 2014, 18 vessels had estimated market values below carrying values, with aggregate market values of $516.8 million versus carrying values of $669.8 million, although no 2013 impairment was recorded for those vessels.
- Whether the fixed $0.03 quarterly dividend remains sustainable given low operating cash flow, debt service, dry-docking requirements and fleet investment needs.