Author Topic: TOO - Teekay Offshore Partners L.P.  (Read 47454 times)

chrispy

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #110 on: January 11, 2019, 05:56:48 AM »
Heth, I appreciate the work you have shared here


heth247

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #111 on: January 11, 2019, 09:16:56 AM »
Heth, I appreciate the work you have shared here

Thanks, Chris. Actually, it was the original discussion by BG, Packer, and later Seth, that helped me to understand and became really interested in this investment.

I welcome feedback by other board members on my thoughts shared above. E.g. I assumed that the $366MM + $85MM secured debt payment can be simply refinanced. If that assumption is not true, then TOO can run in to liquidity trouble.  On the other hand, they issued 700MM @ 8.5% unsecured debt last year, and used it to take out the 200MM @ 10% debt BBU bought from TK, that is due in 2022. This tells me that they don't foresee any trouble of liquidity in 2019, otherwise they would have kept that 200MM debt because it not due for 4 years. Does that make sense?


Deepdive

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #112 on: January 12, 2019, 02:45:02 PM »
heth,

That's nice of you to call out BG, Packer and Seth.  It is very un-Wall Street of you. 

heth247

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #113 on: January 12, 2019, 05:21:54 PM »
heth,

That's nice of you to call out BG, Packer and Seth.  It is very un-Wall Street of you.

Hehe, I am indeed very "un-wall street", because I don't work in financial industry. I am a software engineer who is still learning value investing. I will try my best to contribute meaningfully to the discussion, and hope can learn from others here. thanks.
« Last Edit: January 12, 2019, 05:30:41 PM by heth247 »

walkie518

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #114 on: January 14, 2019, 09:59:08 AM »
Heth, I appreciate the work you have shared here

Thanks, Chris. Actually, it was the original discussion by BG, Packer, and later Seth, that helped me to understand and became really interested in this investment.

I welcome feedback by other board members on my thoughts shared above. E.g. I assumed that the $366MM + $85MM secured debt payment can be simply refinanced. If that assumption is not true, then TOO can run in to liquidity trouble.  On the other hand, they issued 700MM @ 8.5% unsecured debt last year, and used it to take out the 200MM @ 10% debt BBU bought from TK, that is due in 2022. This tells me that they don't foresee any trouble of liquidity in 2019, otherwise they would have kept that 200MM debt because it not due for 4 years. Does that make sense?
Unless Brookfield has other plans, I would think that buying into a firm to drive it into bankruptcy is not the goal.

My assumption is that Brookfield likely backs the business or finds a way to leverage its balance sheet to put financing in place at attractive rates that the business could not otherwise afford. 

There is also a lot of money that could be made on loans with high IRR and low absolute interest rates...likely a way to juice returns for some Brookfield funds should the market dry up?   Too incestuous?

heth247

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #115 on: January 26, 2019, 02:37:09 PM »
Does any body have access to the MS analyst's recent report on TOO, in which he set the target price to $1? I wonder how he models the normalized cash flow and arrive that kind of valuation. Thanks.

bjakes00

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #116 on: February 01, 2019, 02:26:40 PM »
I do but can't share. The analyst basically has an "MS estimate" of the value of the fleet of $4.1bn ($1.9bn for the shuttle tankers, $0.4bn for the FSO, $1.4bn for the FPSOs, $0.3bn for the Towage segment and $0.1bn for the UMS segment) and then nets off the debt and the preferreds to get to a common stock equity value of -$0.3. He then applies a 15% appreciation on the shuttle tankers and FPSO/FSOs to get to $1 for common equity...a magical approach.

I think a far better way is a cash flow based approach but the key question is whether that debt can be refinanced (which it seems like it can be from some explanations further up in the thread, especially from JDCap).

My other question is if there are no returns in this business to be had, why are they choosing to invest into new tankers? Surely there is someone with some capital allocation prowess on the board who can see the returns and is making that decision.

Either way, this is a really low return on capital business and I'm hoping a bit here that they can scrape this turnaround through. From what I gather, hope is not a great investment thesis but keen to be proven wrong here.

heth247

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #117 on: February 01, 2019, 03:05:05 PM »
I do but can't share. The analyst basically has an "MS estimate" of the value of the fleet of $4.1bn ($1.9bn for the shuttle tankers, $0.4bn for the FSO, $1.4bn for the FPSOs, $0.3bn for the Towage segment and $0.1bn for the UMS segment) and then nets off the debt and the preferreds to get to a common stock equity value of -$0.3. He then applies a 15% appreciation on the shuttle tankers and FPSO/FSOs to get to $1 for common equity...a magical approach.

I think a far better way is a cash flow based approach but the key question is whether that debt can be refinanced (which it seems like it can be from some explanations further up in the thread, especially from JDCap).

My other question is if there are no returns in this business to be had, why are they choosing to invest into new tankers? Surely there is someone with some capital allocation prowess on the board who can see the returns and is making that decision.

Either way, this is a really low return on capital business and I'm hoping a bit here that they can scrape this turnaround through. From what I gather, hope is not a great investment thesis but keen to be proven wrong here.

Thanks, that's about the same as what I heard from other sources. I agree that it makes more sense to valuate it based on cash flow. But since TOO's cash flow contains so many noises I wonder if the MS analyst at least make any effort to estimate the normalized FCF. Sounds like he didn't.

Why do you think this is a "low return on capital business"? The ebitda margin has been consistently > 35%.

bjakes00

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #118 on: February 02, 2019, 05:40:11 AM »
I知 referring to the sheer amount of capital it takes to generate that EBITDA (never mind the ongoing capex it requires).

When you look at the interest bearing debt and the full equity stack (incl. the preferreds) and compare that to the EBIT it generates, I start to get a bit worried.

I need to read all that stuff that JDCap linked around the financing of these assets, if you have long life asset level finance you might be able to focus less on ROCE/RONOA and focus more on ROE.

Also a bit concerned that Brookfield will transfer equity value to the debt holders here (of which it is both) and stuff the minorities.

That being said I知 along for the ride and it痴 a small enough position that I知 not too concerned.

heth247

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Re: TOO - Teekay Offshore Partners L.P.
« Reply #119 on: February 02, 2019, 11:07:13 AM »
I知 referring to the sheer amount of capital it takes to generate that EBITDA (never mind the ongoing capex it requires).

When you look at the interest bearing debt and the full equity stack (incl. the preferreds) and compare that to the EBIT it generates, I start to get a bit worried.

I need to read all that stuff that JDCap linked around the financing of these assets, if you have long life asset level finance you might be able to focus less on ROCE/RONOA and focus more on ROE.

Also a bit concerned that Brookfield will transfer equity value to the debt holders here (of which it is both) and stuff the minorities.

That being said I知 along for the ride and it痴 a small enough position that I知 not too concerned.

I see. I guess the low ROIC so far is a result of management's past mistakes on bad capital allocation, and that is what BBU comes in as the fix. But the business itself is a good business that earns high margin.