Moody’s Gives B2 to Teekay’s Add-On Notes
Moody’s Investors Service assigned a B2 rating to the USD 200 million add-on to Teekay Corporation’s (Teekay) existing 8.5% senior unsecured notes due 15 January 2020.
The add-on notes are being issued under a supplement to the indenture of the 8.5% Notes and have the same terms, conditions and maturity date.
Teekay intends to use the net proceeds to repay a portion of indebtedness outstanding under its USD 500 million revolving credit facility and the balance to replenish cash reserves used to repay the outstanding principal balance of Teekay’s NOK Bonds that matured in October 2015.
According to Moody’s, the Corporate Family rating of Teekay is B1. The rating outlook is stable.
“The B1 Corporate Family rating reflects Teekay’s leading position, through its subsidiaries that it controls, as a provider of maritime transportation of oil, gas and refined petroleum products, and an operator of FPSOs (floating production, storage and off-take units),” Moody’s said.
Moody’s believes that the long-term contracts on the majority of the Teekay family’s LNG and non-conventional tankers offset the highly leveraged profile of the company.
Given this, Moody’s expects that the cash flows to the parent can continue in upcoming years, as majority of the company’s offshore vessels are tied to production rather than exploration, lowering market risk relative to service-providers to oil exploration operations.
The B1 Corporate Family rating also reflects Moody’s expectation that Teekay Parent will strengthen its stand-alone credit profile via sale of its remaining three FPSOs, together with the debt secured by these vessels, to Teekay Offshore Partners by the end of 2017.
Elimination of this debt from the parent’s balance sheet is expected to occur, either by pay off with sale proceeds or transfer to Teekay Offshore. Parent debt at 30 September 2015 stood at about $1.0 billion, following the sale of the Knarr FPSO in July 2015.
“Parent debt is about $200 million higher than Moody’s anticipated because Teekay Parent took more equity in place of cash than expected when dropping down the vessel to Teekay Offshore. Teekay Parent will have no remaining operating assets following the disposal of the one Very Large Crude Carrier and FPSOs that it owns,” Moody’s said.
As explained by the rating agency, the B1 rating anticipates that Teekay Parent will maintain adequate liquidity and no longer use its balance sheet to directly invest in new projects or vessels. Repayment of secured debt with vessel sale proceeds will further reduce funded debt, lending additional support to the B1 rating.
Moody’s foresees no upwards pressure on the ratings during the next few years.
“A negative rating action could follow if Teekay Parent does not fully transfer or repay the secured debt associated with each of its vessels upon their disposal. While not expected, a decline of more than USD 40 million in the annual distributions received by Parent could pressure the rating as could another increase in funded debt should Parent unexpectedly directly invest in growth projects. A reduction in Parent’s unrestricted cash to below $125 million or the inability of Parent or a subsidiary to timely refinance upcoming debt maturities could also lead to a negative rating action,” Moody’s adds.