Q1 2020 Earnings Call
Good day, ladies and gentlemen.
Welcome to today's Teekay LNG Partners' first quarter 2020.
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Call participants.
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Afterwards.
The question answer session at that time question.
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As a reminder, this program is being recorded and now for opening remarks and introduction side.
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Before Mr. crawling begins I'd like to direct all participants to our website at www Dot Teekay LNG Dot Com, where you will find a copy of the first quarter of 2020 earnings presentation.
This presentation during today's conference call.
Let me remind you that our discussion today contains forward looking statements.
Results may differ materially from results projected by those forward looking statements additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the first quarter of 2020 earnings release and earnings presentation available on our website.
Now I'll turn the call over to Mark again.
Thank you Scott.
Good morning, everyone. Thank you for joining us on our first quarter of 2020 earnings conference call for Teekay LNG partners.
We hope that you wouldn't your families are all safe and healthy.
You want today by Scott <unk>, she can't gas groups. So.
Before we get into our results he will take a moment to see if they keep to all our see Saracens shore based staff for their extraordinary dedication to maintain business continuity.
19 is having an unprecedented impact on the world and it's clearly a major focus for us or long term contract cover has ensured it has had minimal impact on teekay LNG operations and cash flows.
Our truly proud with books for seafarers.
And our onshore colleagues.
Oh, they have responded to cope with 19 implementing new standards, which focuses on the health and wellbeing, everyone can Golden organization, especially our college at sea, while maintaining consistently safe and efficient operations for our customers.
Turning to slide three of the presentation.
We review somewhat Teekay LNG is recent highlights as well as a few key takeaways summarize how we believe schicchi LNG.
Equally position today, and not just to get sort of LNG shipping peers, but also how we are uniquely compared against most energy related companies out there.
Our first quarter adjusted net income increased to over $52 million seventh consecutive quarterly increase.
And as we will discuss in a moment, we expect our adjusted net income will increase again next quarter.
With the recent charter of the Mirror Spirit LNG fleet is now 100% fixed for 2020, which is in line with our strategy of optimizing utilization of our fleet, which we think benefits all our key stakeholders.
As announced last week, we agreed with our sponsor Teekay Corporation to eliminate their I'd their incentive distribution rights, where I'd ours.
We believe this creates greater alignment between Teekay Corporation, and the rest of our investors and removes one of the primary uncertainties for new and existing TGP investors.
And importantly, we believe we're trading at attractive multiples of earnings and cash flow that part reflective of the strength of our business and therefore represents a compelling opportunity for new investors.
During these last few months energy LNG shipping in equity markets have experienced enormous volatility.
What our business and the partnership as a whole.
And I have largely been insulated from this volatility.
On this slide realistic five key takeaways that we believe make teekay LNG unique in the markets today, and a compelling investment for existing and new investors.
First.
Q1, 2020 was another record quarter for Teekay, LNG and our total adjusted EBITDA up nearly 20% over the same quarter one year ago.
Second.
Our LNG fleet is 100% six to 2020 and 94% fixed for 2021.
And as we will discuss in a moment all up our fixed rate charters are take or pay in nature.
Third.
We have a strong financial foundation leverage decreasing strong liquidity position.
No remaining debt maturities in 2020.
No growth capex needs.
Fourth.
Based on the stability of our business, we are reaffirming our 2020 financial guidance and we expect this years adjusted earnings will increase by nearly 50% over 22019.
Yes.
We continue to increase returns to our investors in the form of increasing distributions in buybacks.
In combination this puts teekay LNG in unique category companies that only a few if any of our peers in the broader shipping space can match.
Before reviewing each of these key cheap key takeaways in more detail.
I'd like to turn to slide four to discuss our experiences while operating today's call Big 19 environment.
Operationally, we have transitioned each of our vessel smoothly, it's the environment and everyone onshore is working officially from efficiently from home.
We have not experienced any impact on our vessel availability when part you know cases and co bid onboard any of our vessels.
Our focus remains on the safety and health of our crews.
While we while we have been unable to affect crew changes except for extraordinary cases.
We are working with both industry and inter governmental organizations to allow for the safe passage approves.
At the same time, we're hopeful that borders will be reopening soon.
We were able to stock up on critical spares prior prior to travel restrictions being put in place.
Our 2020 Drydock schedule was already back end loaded.
For the few dry docks, we're expecting in Q1 in Q2, we have been able to delay them as needed until later this year.
And lastly.
All of our fixed rate charters are operating as expected.
We have not had any impact on our business as a result of cargo cancellations that may have been taking place and all of our fixed rate contracts are operating as expected.
Similar to previous downturns in the spot LNG shipping markets. We've received no request for contract cancellations none are expected.
Looking to slide five.
We mentioned upfront, but this was another record quarter for Teekay LNG.
With the final delivery of our three and a half billion dollar growth program in December of last year.
We're now beginning to recognize the associated cash flow and earnings which is leading to year over year quarter over quarter growth.
We took delivery of six LNG carriers, and the borrowing regas terminal over the past year and we've enjoyed higher LPG rates in our 50% owns JV with Exmar.
All of which contributed to a nearly 20% increase in total adjusted EBITDA and a 57% increase in adjusted net income comparing the first quarter of 20.2, the same quarter the prior year.
And comparing these same cash flow and earnings items in the first quarter 2020 to the fourth quarter of 2019.
Experienced sequential increases due to deliveries late in 2019.
And receiving terminal use payments for Bart rain in early January.
Importantly, as you can see in the appendix slide slide we're expecting that Q2 2020 results will exceed this first quarters.
We have been including slide six and seven and our presentations for many quarters now and perhaps this quarter or than any previous quarters piece slide set us apart from nearly everyone in our sector.
Looking first to slide six and focusing on the text to the left we would like to take a moment to discuss the key characteristics of our fixed rate contracts.
Our contracts are take or pay.
And there are no provisions pre unilateral change in terms for charter rates.
Take or pay means that we get paid everyday that the vessel is available for operation.
Irrespective of how the customer use the vessel.
The first ship is full of LNG cargo and steaming to its destination, we get paid.
If it is empty going and route pickup in LNG cargo, which the customer subsume the cancels with the producer we get paid.
If it is empty while waiting for Cardinal we get paid if it is full and there is nowhere to offload the cargo due to on land storage for gas transportation issues, we get paid.
If the spot LNG market drops for rises and is significantly different than our contracted rate we continue to receive the contracted rate.
For these reasons, we do not foresee that any of our fixed rate contracts.
They are detailed on slide our in jeopardy of being canceled despite the uncertainty in todays energy environment.
Turning to slide seven.
As announced today, we fixed our final remaining LNG carrier up for renewal in 2020 on contract last week.
Looking at the top three bars on this chart inside the Red Dash box today, we have announced six month fixed rate contract on the 52% bone marrow spirit commencing on June 21st.
Which follows on from the announcement last month at we had fixed the 52% on me same spirit on an eight month contract and the 52% owned our with spirit on a 12 month contract.
Also we are now 100% fixed for the remainder of 2020.
94% fixed for 2021.
Importantly, two of the charters are in direct continuation of their existing charters, which means that no days.
The ballpark for waiting for the new contracts.
Commence.
This is great work by our chartering team to maximize the utilization and thus the earnings of these vessels.
I will now turn over to Scott, who will discuss the next two slides before we conclude.
Thank you Mark.
Turning to slide eight.
Another one of the key takeaways, we hope you take from this call is our strong financial Foundation.
As can be seen to the top right at the slide and looking at Blue line, our leverage as measured by net debt to total adjusted EBITDA. Our proportionate basis continues to decrease we have moved from an annualized 7.6 times as are the first quarter of 29 team to 6.1 times as of the end of Q1 2020 on an annualized basis.
And we expect our de levering efforts will continue into the future with approximately 300 million and scheduled amortization per year.
This de levering benefits investors by building financial flexibility through a higher equity base and through interest expense savings.
I expect annualized interest savings of 20 to 25 million per year simply due to interest savings, resulting from scheduled debt amortization and savings from repaying, our 2020 Nok bond with existing cash.
While a significant portion of our interest rate exposure has been hedged should interest rates remained low interest costs on our floating rate debt will also decline.
Looking at the chart to the bottom right. We also believe that our financial foundation as strong because of our very manageable debt repayment profile.
After repaying, our Nok bond, which matured this past Tuesday, what cash current liquidity of over 260 million and no further debt maturities in 2020.
We are three facilities that mature in 2021, and we are already negotiating terms sheets with existing lenders on the tangible LNG and Exmar LPG joint venture facilities.
Each of these facilities are backed by attractive vessels and then the case and tank you contracts with BP to extend out to 2029.
The 2021 knock on doesn't mature until October of next year, and so we have over a year before we would need to refinance this maturity.
Our expectation is that we will refinance this ball on prior to its maturity, albeit at a reduced amount.
In summary, we have a strong liquidity balance very manageable debt maturity profile and strong Bank group and therefore, we believe Teekay LNG has a strong financial foundation, which benefits all stakeholders.
Turning to slide nine we continue to believe TGP represents a compelling investment with a tenant to half year fixed rate contract revenue backlog of approximately $9.3 billion alternating at a 2020 adjusted earnings multiple of four times, a cash flow multiple of 7.7 times and with a dividend yield of over 9%.
Teekay LNG has already racist distributions by over 30% for two consecutive years and we have reaffirmed our twentytwenty financial guidance range today.
We took advantage of the weakness in our unit price by repurchasing shares during the quarter repurchasing 810000 units since reporting earnings in late February.
On average price of $9.75 per unit, which brings our total repurchases to nearly $45 million or 4.6% for outstanding unit count since the start of the program in late 2018.
However, going forward.
Maintaining a healthy balance sheet and strong liquidity balance will outweigh additional unit repurchases.
Before I turn the call the call backs and Mark to conclude.
Looking at that charts at the top of this page adjusted net income and total adjusted EBITDA in 2020 are expected to be up materially over 2019, which is already up significantly over 2018, which as Mark mentioned earlier makes us truly unique amongst our peers in LNG shipping any energy markets at large.
I'd now like to turn the call back to Mark to conclude.
Thank you Scott.
Before we open up the call for questions, we would like to close out today by recognizing the unprecedented volatility and uncertainty that has occurred and natural gas and LNG markets.
From a demand supply and pricing point of view.
And the impact this has had on LNG shipping and the outlook for new projects.
As economies begin to reopen and hopefully return to the same or some level normalcy moral become clear to us.
However, during these uncertain times, we take comfort in our robust business models, which with a fully fixed out LNG fleet.
A strong financial foundation, and dedicated staff and seafarers, who will keep everyone safe as we plan to reorient.
Around the new normal.
Thanks for your time today and operator, we're now available to take questions.
Another quick reminder, ladies and gentlemen that star one if you have any questions. If you would just make sure that your mute function is turned off to allow us to receive that signal.
Our one for any questions and first we'll hear from line of Randy Givens with Jefferies.
Piloted Gentleman's has gone.
Already.
Yep.
He.
Only lars getting the Nok bond paid off.
Question on the marathon was that more of a.
We've ever done decision or kind of that that market really dried up.
Hi formally.
Exorbitant actually went up one we sat and then kind of going forward.
Okay, so kind of re enter that market or kind of stimulates the time doing.
Yes, Thanks, Ryan into Scott.
No that market, we believe is open.
Obviously went through some pretty significant volatility like we saw in the U.S., but.
Similarly, now that we've seen a ton of issuances in both the investment grade and high yield space and in the energy space in the us.
I would say that.
I would imagine that the same as achievable in in Norway.
We have talked to a number of our investors that we have good relationships with as well as a number of our bankers that ultimately helped issue these bonds.
And we do believe that we could have issued in that market today.
But I think that the pricing that we would have received as probably not one that we would have expected to be.
Active and.
And really just not required us we're sitting on over $250 million liquidity today, when given that we don't have any capex.
Domain.
For an operating company. This is fixed note as we are we just looked at that is being rather expensive insurance I think as maybe one way to think about it.
And then I said my remarks, we do have a maturity in October of next year. So we've obviously got lot of time.
To chip away at that.
$147 billion.
That matures and I think it will be maturing that for a smaller dollar value and I think that if you see a window open up later this or early next year then.
Or maybe open up wider and as you some better pricing that I think you'll see us look at chipping away at maturity well in advance of October.
Okay.
Because oh.
Shipping side.
Only kind of positives in this environment.
Well.
With that give a little more clarity in terms of.
On the margin.
For the Necklines here I, just want to see sensitivities around modeling, obviously not massively impactful.
To your guidance, just kind of seeing where rates are today for those let's call. It short term tankers.
Sure Randy.
Sure, they're all around the thirtys or or 40.
Per day.
In terms of the market, we probably see that already a little lower today for the next.
Six months or so.
We've been seeing TFT ease and make these are getting a bit of the premium. So you'll recall that these are actually not the two stroke, there the DFT or TFT.
That's the kind of rate, we're we're getting in the interesting thing about these charters as we mentioned to some extent in the in the and the headline and then scripted remarks has said they are.
If not continuous and two cases, we basically go off near to another major trader on an absolute continuous basis third is very close so there's very little waiting time or repositioning cost to us in any of these are not and these charters and thats really important for us.
Over the next quarters or too.
Yeah that makes sense and then you mentioned briefly that.
That's all part of the cargo on it you're getting paid doesn't ever Carter, you're getting cold summer you can look for red and you're getting paid well Hello.
Out of kind of Bucks lenses.
Function functionality with all of the.
Production starting from some of these outcomes are there more vessels kind of balanced in per longer or no. It doesn't affect.
And there was some of those contracts, but just looking at the operations of the vessels.
Yes. This is something I read about in the news a lot, but it doesn't necessarily aligned with what we see what their own fleet and we get a pretty good look at at that at a cross section of LNG with our 47 LNG carriers, we know where they're all going we're not seeing floating storage to the extent that others are referred to.
Preempt any discussions are going to have it's difficult to make those economics work and along the same lines, we're not seeing necessarily a slowdown in our ships.
So weve seen a couple from.
All in Australia that had have slower speeds than we usually have on those trades, but for the most part we're not doing a lot of slow steaming we have seen some cancellations. So they don't really impact us as I said typically another.
Charter maybe picks up the cargo arcos elsewhere, we have seen a fair amount of sub charters. So what I always refer to set a shadow into inventory.
We have 47 LNG carrier cares chartered out, but we can also see who subcharter because the the operational orders and whatever will change. So there is a fair amount of sub chartering that we can see in the market right now but.
Sure to kind of reiterate no we're not seeing eight a. and operational change for the most part in how we're steaming and certainly not in how we're sitting yet.
Got it right way, Vince warm and they work.
Thank you very much for Andy.
Moving on from Stifel, We have been Nolan.
Hi, Ben Okay yesterday.
I am I appreciate that.
So I have a few questions and I'll try to go through pretty quick here, but.
The first if I was just hoping that it is impossible to give any.
You know now.
Everything's been deliver the Capex has done a lot of the refinancing has been taken care of any any color on what you're thinking about with respect to that the pace of distribution growth.
Going forward I realize it's a board level decision and whatnot, but.
Yes, and any color.
As to what you're thinking about there.
Yes, hey, or any.
Sorry, a bit.
Yes, it is ice too.
Obviously to have that removed and I think that does give us some some additional flexibility to consider how we allocate capital.
I think as we've highlighted before and again on this call is that we're really prioritizing that you know the balance sheet de levering.
And that's probably going to last for at least the next few years and we have been returning capital obviously in the form of buybacks and in dividend increases.
Over the last couple of years, and but I think it looking ahead.
It is a very uncertain environment and.
So we are going to continue to prioritize balance sheet Delevering now.
And we'll see where we are once we have gained back some of that place financial flexibility.
Further de levering to see what it is that we are going to do with any excess capital, but I think really it's too too tough for us to tell at this point.
Or give any type of distribution guidance, because there's just too much uncertainty.
Uh huh.
Yeah.
But that yet given that it sort of leads me scratching my head a little bit on the timing of the IDR buy out I mean, obviously.
You expect the share price you increase over time this a leveraged falls.
Hi.
But.
Yes.
Not only is dilutive to earnings but.
There's there's evidence or distributions being paid on that so it's dilutive to your ability to repay debt.
I can you maybe talk through.
Why well the motivation wants to do that now relative to maybe waiting a few years until that would that's paid down and you had a little bit better line of sight on distribution growth.
Sure maybe I'll take a stab at it marks guide follow ups I think from an overall delevering point of view I don't think this really impacts us too much like I said in my remarks, we did you amortize around $300 million in debt per year and the distributions that are being paid on the new units is.
The dollar anyway, as 10.75 million per year. So I don't think that it really has a huge detrimental effect.
Locked on our de levering efforts.
And then from a valuation point of view and the timing point of view I think one way to maybe think about it is.
It is a discounted value and so when the valuation would have been performed.
There is there would have been a discounting factor that would've gone along with it and so.
I actually look at it that it would follow but cheaper today, because that discounting factor than it would have been.
In a couple of years lunch, we were in a.
Do you Levered position and maybe it would have been.
Easier to have that line of sight directly onto a value and the IDR. So.
Yes, I don't like issuing.
A lot of stock at these levels.
But I also think that you get a coming the other way, which is just an overall lower.
Lower valuation.
And then the last part from a timing is.
We've seen a lot of.
Carnage across energy space.
Across the LNG shipping space.
I think for the most part due to a lot of.
Prudent actions taken over the last number of years Teekay LNG is really going to be.
The one of the only LNG shipping companies that is available for investors are really investing and what we heard from a lot of investors was that with the IDR is in place and given some of the.
Atrocities, we've seen with respect to these IDR transactions in particular, the midstream space.
Well, we're not willing to invest and GGP was kind of on investable. So I think as the world recovers as energy markets recover and people look to put their money hopefully and LNG shipping companies then what these are yours removed.
Overnight and a half billion dollars cash flow and steadily increasing returns to investors that theyre going to put their money into TGP and so I think that this actually was an opportune timing to do it so that sets us up well for.
For recovery.
Okay.
Okay. That's very helpful. One unclear you had mentioned sort of discounting factor on how you're thinking about valuation, but could you maybe it wasn't initially in early may be talk through the economics of how you got to the price that you got to.
You know.
In terms of both the timing of of how long you were discounting and sort of what they.
Well, you're assuming for let's call it a fully baked.
Via bars.
We we've mentioned.
On that Teekay call, but we'll mention again, we don't have direct access to that and that's just went through a robust project process as we say with the conflicts Committee, which is independent board members.
So we don't have the actual valuation that they have but we can't see is.
The compelling way forward I mean this was there was a lot of uncertainty as Scott said.
Around the stock which has been remote.
And so everyone's on the same site feel going forward and includes equips teekay.
When you talk about alignment there was no cash here they've taken they've taken all shares and so.
We've got that going forward and they like like everyone. I think should be not some focused on the distribution right now, but it's the PE that we have which is unbelievably mispriced in my opinion, we have a up.
Pre tiny our transaction PE around a little bit the high threes and Weve gone to around the country around four so as we all are on the same plane, so feel together, including Teekay. That's what I look forward to and that's the valuation that I see that is very mis priced.
Yes no.
From my point of view I agree.
No question.
Units are.
Undervalued here, but I'll turn it over the point and let somebody else things that affect that.
Next question will come from Jamie Miss Meyer with value Investor event.
Good morning chain, where do you.
Hi, good morning, gentlemen, congrats on an excellent cost.
Excellent. Thank you.
Thank you so we'll start off with.
Will housekeeping questions that I move bigger picture so first of all.
Little bit of a quarterly slip it was great quarter, but a little bit of a quarterly slip I think in revenues and income, but if you look at your keeps you've outlook. It seems like that bounces back in Q2. There is a line item for reduction in claims can we can we talk about what that means and what that back as.
Yeah, so on a basically every quarter.
There are operational claims that we may receive.
Charters and sometimes are little bit higher sometimes are little bit lower and I think what you saw in Q1 was.
There was a little bit of a catch up of some claims maybe from last year or previous quarters.
That were recorded this year and then we are or sorry, this quarter and now we actually expect that a number of those will likely get reversed next quarter. So there is some movement around where it's all of what I would say just general.
General LNG shipping operations, if bucket that just some slight color to that may or may not be useful but most of these LNG charters most claims coming there in the end that way of fuel performance and most LNG charters you you price your your fuel according to what the fuel.
Quick went up of high sulfur today excuse me low sulfur.
Yes.
And if you look at that Q1 in particular.
We had this spike of pricing and going forward and already in fact, the as you know from your tanker discussions.
High sulfur fuel both prices and spreads have really come down so that will hopefully be up.
As we say a headwind.
Sorry, tailwind for us and any future claims.
Excellent Thanks, and just one other thing when I when I look at Slide said six and seven looking here fleets and we're looking into 2020 and 2021 to see exposure and I see Excalibur pop up at the 50% own steam vessel, it's a financing transaction.
You sold the sister Excelsior I think it was also a couple of years ago. It's Excalibur also sort of non core and for sale or do you continue to hope to roll that one.
It is all the steam ships are a relatively noncore, it's a smaller part of our business as you know certainly from a revenue side already it's not it's not.
As materialize.
T. A teaser megi is there any of other people's firms as you say, it's a it's the first of our steam ships to come off I think it doesn't come off until 2000 2021, and so we have a little bit its time with our joint venture partner Exmar too to think about that the the the sister ship was a little bit different Atlas.
A small FSRU that we sold but we have to figure out like everyone else in the world start steamship strategy here in terms of whether we divest or whether we continue to roll over its not going to roll over to actually accelerate which is the current charter, but what are we redeployed in some way the good news is that.
When it comes to Teekay LNG, we have very limited steamship exposure, our roll off the Sperry staggered and it doesn't come for a few years as you've already pointed out but it's not it's not a business, we're going to be growing put it that way.
Thanks, Mark you mentioned the prepared remarks that de leveraging would continue to outweigh repurchases and of course that makes sense. You have 300 million of scheduled amortization you took out the dock bonds look we see the stuff in 2021 coming up does that mean repurchases or pause or off the table or you're just saying they're going to be.
Lower priority.
I'm going to hand, this over to Scott, but I just want to clarify one thing I think I'd said 2021, but actually it's 2022 before the Excalibur will well if it's a very least slate.
Late late late late December on an earliest redelivery. So, let's just think about that as 2022 and I apologize for that or turnover Scott.
And then the unemployment obviously make on that vessel market is that actually your when it does roll it's got extremely minimal debt on it and so it.
It won't be much of a drag for us from an operational point of view or revenue point of view.
I think Jay with respect to buybacks I would probably look kind of is more of a pause like we're seeing.
Going on across the space.
We still believe the stock is undervalued we've done it before we've now got greater alignment with apparent to look at things like buybacks.
But I just think that given all the uncertainty that we just need to give it a pause and see where things shake out.
Understandable, Scott Cobot 19, I think investors do you understand that I think investors bigger concern that I brought this up on the TNK calls well, it's something I hear literally every day is that capital is going to be squandered on new growth on the investments at a time when the stock trades at frankly ridiculous valuation right I mean.
Argue or how big a discount, but whether it's 30% or 50%.
I know you made sort of we have a podcasting that we kind of talked about capital allocation and stuff that quarterly call. It's kind of a different place here, but are you willing to reiterate the fact that no. We're not looking for growth at this time that we will not commit to growth and less it makes sense on higher we basis as and it was more accretive the purchasing units.
No we are not committed to growth at this time, we will not do it unless it makes sense and borrowing bases absolutely James that is not the first priority for us as you've you've heard met many times you don't de levering and other things will take priority.
Even if you want it to grow its going to be tough. So we'll just I know this is a bit off topic, but as you probably know as you do the flight East financial investment decisions have been pushback by most if not everyone for at least six months, we're probably a year.
And even fundamentally we'll have to look at where this whole goes I think it's far might still come out this year, it's a bit on on certain I've seen the bids from and Nigeria, but we're uncertain about.
Might even come out this year I just said all that's ideas are likely to be delayed. So yes. The first priority is not is certainly not growth and dumb.
We'll see what happens with these opportunities it's not sun anytime soon and my guess.
Excellent Mark Thanks for clarifying that it's literally number one concern of all investors that I've talked to final question for you look we had a lot of heat on the T.K. call about the GP IDR I think we had a good discussion earlier on this call there's sort of that hey, it's not us. It was this conflicts committee that did it and yes, I get the legal perspective.
That its hands off its an independent committee is there any potential or a chance for that report or for that valuation has to be filed or disclose somewhere in the future.
Excuse me reference that exhibit right because right now it's like Black box, it's not US you know don't blame US yeah, we get that but people still want to see some sort of valuation some sort of connection hobby.
My understanding and she is no. There's the devaluation will not be or the process. Some evaluation will will not be disclosed so so thats the shorter, but all I would just surge everyone.
First of all like I think it's a good deal because you know before I was hearing that that the biggest uncertain from every investor that I spoke to the biggest uncertainty was whether at an IDR deal done or not and now just heard that the biggest shift is moving onto whether we're going to grow. So we've already managed and some part what we've been dealing with for the last.
You're too.
So that's that's fortunate itself as we move forward and we talk about growth and things other than the IDR I'd, just remind everyone how well we're trading or how poorly I should say, we're trading on a on a on a kind of p/e basis, and I think it's a great but so Scott do you have anything.
Hi, Thanks, Marc Thanks, Scott Congrats on a good quarter looking for more.
Thank you very much Jake.
And on looks like we Havent question from Michael Webber with a research.
Hey, good morning, guys ARIA.
Good morning, Mike.
So I'm going to dig back into the the IDR. We don't line. So I know Jay just touched on this and there seems to be some degree of kind of completing an independent person something big secret.
You know.
Irrespective of whether that's secret you guys and seen I assume the.
You can get an independent assessment of the valuation and then you would side does that make sense, we think thats a good deal or not so why do you guys have done Nurown book already right, maybe if you can't get into what the independent assessment came up with.
What do you what did you use when you are evaluating whether or not you thought that they came up for those of good deal and whether or not you thought you wanted to pull the trigger.
Well, we are not able to pull the trigger and I'm not trying to Russia software for doing it but it's again, it's dosing independent committee, that's who who decides whether or not this is going to be done and.
What what price.
Does it to decide when you said it to decide whether you're going to do so.
On T.K. puts an offer to the independent Committee, which then makes a recommendation and to the board and Thats how that that networks.
So they'll get you get you get the number and you get the value right. So they came up with 500 million wouldn't be stopped paying 500 million you'd say, okay, maybe I don't want to do that right now.
You had to do your homework at some level right.
No. This goes to this this this doesn't involve Scott or myself for this this was done by independent independent directors, who who together for me conflicts committee and its their decision as to whether recommended this deal or not and it doesn't involve management, but I'm happy to.
Just to speak to two what Scott and I see which is as you've heard from the same thing is from Teekay Corporation.
Very visible predictable cash flows everyone I spoke to.
He is talking about the overhang in the uncertainty Fortunately by the way those stocks been trading since we've done the deal that seems to have a have been somewhat relieved.
The we trade at a low PE, which is.
Would you still feel but I I understand that.
That's a good back so you commit to the deal before you have any idea when prices.
It does anything that you say you want to do like does the independent Committee and you have.
Randall you know say on there from that.
To some extent that is correct.
We were helpful.
Most for them is that in any of the assumption. So that's it.
Exactly you were helpful. When the assumptions I get in terms of water depth.
Okay. So.
It wasn't that you get handling in your hands.
And player who actually made the decision I guess in terms of like when they come up at the price of I talked with again some of the recent deals.
I guess, maybe come first of all I'll do you have to slip at all I think day or is there any kind of earnout provision like we've seen in recent deals.
No there is not we're completely aligned.
Everyone is a common unit holder all the same total line.
Right, so considering how far out of the money they are like having an earn out structure, where the distribution, but less than.
What would that similar to what we saw the with the gap log in terms of I guess.
One other thing.
The same level into the being the same kind of unitholder, but you know.
The distributions until you actually got to a level will be I'd be a little bit money. There. The earn out structures are pretty common or is there an opportunity to go back and so right now.
Chance, we might not raise our distribution by 160% on that might not actually be add land. We put some protections in there just to make sure that we're not paying for something whatever needs.
No I think I think the deal is done and we're all looking forward already to two what's next.
What I and when I look at some tier.
I'm not even sure we have great visibility on how those different structures work, they're going to be talking about those structures for for some time and how they work no from our standpoint, we're looking forward to what's next for trading at a at a very attractive value. We're looking at growth prospects eventually.
And overall, we're not looking to be cut.
This this deal.
Okay.
I guess, if I think about it at the use of capital right like I think you mentioned that one of the earlier question one year earlier questions around not looking to go out and.
Grow for growth sake, and I guess, I I big Liberty, but I assume going out and ordering a couple of LNG carriers on spec right now is not.
Something you've had with sling yet at the moment right that there.
Yes, fair and I think about what I'm talking about that rooms with capital.
When you guys take 121 of equity.
By two LNG carrier that don't have contacts on them. So you're not sure if that you'll have actually going to be in ammonia in three years or not.
Hi.
Wouldn't do that deal that actually has an inherent value I'm trying to decide why this is a good time when you're focused on de leveraging the unemployment claims on the equity unallocated for something they were not sure im going to have any value.
So to your three to your point exactly Mike I don't I don't know exactly what the.
LNG carriers came to trade in and three years or two and half years when it delivers but I do know what our cash flows will be we've got certainty for the next 10.
And so that's a very different analogy I think you're pointing to.
Alright sounds kind of juxtapose that with the fact that there's the method down the earnings call today see leveling don't expect distribution builders and living a distribution going over the next handful of years, but we're going to spend $123 million imposes on $24 million on IDR is that are so far out of the money that.
But.
We have no idea, whether they're actually going to be doesn't have any real value to them.
And to think about that from a capital deployment this that.
Hi.
I'm not sure money that image that need to be it seems to be honest about connecting tiny originally filed.
Right.
We I'm not sure that everyone shares at that you Mike there will be a fairness opinion involved in this and so I'm not actually I think the map the map.
Map implies they're not in the money or you may now.
There is the distribution at a level or the idea is are actually.
Paying out right.
Hey, Mike maybe another way to think about it is where we're sitting here right now what the coverage ratio of around four times.
And we do expect to this will be sustained well into the future. This isn't a spot tanker company as Mark says he got 10 year contracts not at $5 billion. So our cash flow profile in our Delevering is actually extremely certain.
I think if we look at some of the other similar transactions I think we can all admit to this one is rather unique.
Other other IDR monetization transactions and shipping midstream whatever.
They were paying out all the cash flow sort of made a very easy to throw multiple on it and everybody sits back and says okay. It was out of good multiple they're not the problem is and what we've seen senses that they were paying around a one times. So therefore, the monetize the IDR get monetize off of that extremely high level, well then what happened so that benefits the GP enormous.
But then what happens as we've seen they cut their distributions and that actually impacts. The LP is enormously so they have to shore up there.
But just as it and then so and then pick cutting out the middle man They said.
So what I'm doing are happening bump the distribution you started to monetize them I mean at least in the Felmer scenario healthy older kept the distribution along the way right sure sure maybe they got the distribution along the way and it would've been easier we could have.
Core could have Jack the distributions.
Yet to one times due to the monetization and then as we've seen other people do they turnaround and they've got the distributions and that kills the LP value right now Teekay LNG is on an upswing, we're generating a lot of cash flow, we're generating a lot of earnings or trading I know, what we think is very attractive multiple for investors and I wouldn't.
Far rather be on that path and have these RDR is behind US then to go through some level of financial engineering, just so that it makes it easier to show the value of the audio ours make you happy because you can put a multiple on it and then ultimately that you have to cut the distribution like that that to me just doesn't make any sense.
Oh that had been notion of removing the idea is one thing, but making people happy about putting a multiple on it that's just the math, it's I think people generally.
You can now be on previous calls like standing on to keep on agency box and just taking a gaming and getting a sub hauling water assuming you got there at the last seven or eight years would show that there is a degree variability and things change and maybe something that part of the money, maybe if not maybe value like a hold started annuity by not be accurate, but anyway I'd like.
The devaluation work would be helpful. In the notion that there's you know.
But there was something that somebody variability price into that I think that's the biggest thing to catch the people lie.
You got the Middle Man and thing, it's going to be dilutive Fred LP Holden matter, what what's your take them on the now I don't think particularly intellectually satisfying answer.
But we can we can kind of look into lawn.
I think I've got to I think that's that's picking them up on make up all my questions I appreciate that.
Thank you discussed in the 19th whole Mike.
I'm sorry.
We discussed on the 19th pool.
That's true that will get.
And ladies and gentlemen at this time I'd like to then floor back to Mr., Mark Kremin for any additional or closing remarks.
Well I'd just like to thank everyone on behalf of everyone at Teekay LNG, we look forward to seeing.
Many of you many of you in person again hopefully.
Sooner rather than later so thank you very much take care.
And once again, ladies denim and that of winter call. We do thanks for joining US today you may now disconnect.
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