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Rating Action:

Moody's assigns B2 rating to Teekay's new senior secured notes, affirms B3 CFR; outlook stable

24 Apr 2019

$300 million of new rated debt instruments

New York, April 24, 2019 -- Moody's Investors Service, ("Moody's") assigned a B2 rating to Teekay Corporation's ("Teekay" or "Parent") proposed senior secured notes due in 2024. Concurrently, Moody's affirmed Teekay's B3 Corporate Family Rating ("CFR") and SGL-3 Speculative Grade Liquidity rating, denoting adequate liquidity. The outlook is stable.

Proceeds of the new senior secured notes along with about $155 million in cash are anticipated to partially refinance the senior unsecured bonds due in January 2020 (of which about $500 million remain outstanding) and cover transaction fees and expenses. The Caa1 rating on the senior unsecured 2020 bonds is unchanged at this time.

RATINGS RATIONALE

The affirmation of the B3 CFR considers Teekay's significant market position in its respective shipping segments, its financial profile and stabilizing to improving industry fundamentals. It also reflects Moody's expectation of an adequate liquidity profile that should cover the Parent's now reduced near term debt obligations and G&A expenses. The liquidity profile is supported by Parent-level pro forma cash balances of about $65 million and full availability under its equity margin revolver of approximately $143 million based on current market values. Additional support is provided by the improved cash flow generation of the Parent's remaining (owned) operating assets, which have benefited from bonus tariffs tied to higher production and oil prices. However, these cash flows are volatile and vulnerable to unplanned equipment and production challenges. With the underlying offshore and LNG markets exhibiting signs of improvement and continued deliveries of new builds on long term contracts that should start generating cash flow, Teekay should de-lever from the high front-loaded debt levels undertaken for the new build projects on a consolidated basis. The underlying conventional tanker markets are also showing signs of stabilization and should support an improvement in consolidated leverage. However, a meaningful recovery seems unlikely over the near term.

Nevertheless, the Parent's standalone ability to cover its financial obligations remains limited by the substantial decline in its expected aggregate cash distributions from its master limited partnership (MLP) entities. Potential distributions were lowered by the significant dilution of the Parent's ownership interests in Teekay Offshore Partners, L.P. ("TOO", rated B3 stable), following a strategic sale to Brookfield Business Partners L.P in September 2017. Positively, the cash distribution from Teekay LNG Partners L.P. ("TGP") will increase by 36% (to about $20 million) effective 2019 but still far below the approximately $100 million level in 2014 (and about $83 million in 2015). While such cash streams are not contractually mandated, they are a major support to the rating and are very unlikely to be restored to historical levels in the near to intermediate timeframe. Similarly, the near-term prospects for market values of the Parent's equity interests in the subsidiaries recovering to restore asset coverage of Parent debt are also unlikely. Moody's estimates Parent-level debt-to-EBITDA to remain elevated for some time given its operating profile, albeit improving towards the low 6x range from over 7x following the bond refinancing, noting also it provides subsidiary guarantees of approximately $166 million.

The stable outlook anticipates that stabilizing to improving fundamentals in the underlying LNG and offshore markets and upcoming project deliveries will support an improvement in the family's cash flow generation and leverage profile. It also reflects expectations of adequate liquidity to cover Parent financial obligations over the next 12 months, including the ability to address the likely remaining balance of its unsecured 2020 bonds (about $75 million pro forma) well before maturity. The stable outlook assumes timely extension of contracts, amortization payments and refinancing of debt maturities across the Teekay family.

The B2 rating on the proposed senior secured notes due in 2024, one notch above the CFR, reflects the senior position of this class of debt relative to the senior unsecured claims in the event of a default. The notes are expected to be secured primarily by the Parent's remaining operating assets, comprising three floating, production, storage and offloading (FPSO) units. The notes will have a first priority lien on the Banff and Hummingbird FPSO units, a negative pledge the Foinaven FPSO, all equity interests in the FPSO-holding companies and a share pledge of all of the common stock of Teekay Finance Limited, which owns a majority of Teekay's equity ownership interests in the publicly traded subsidiaries.

Moody's took the following actions:

Issuer: Teekay Corporation

Assignments:

......Senior Secured Regular Bond/Debenture, assigned at B2

Affirmations:

......Corporate Family Rating, affirmed at B3

......Speculative Grade Liquidity rating, affirmed at SGL-3

Outlook Actions:

......Outlook remains stable

Upward ratings could develop with a substantial reduction in Teekay Parent debt, supported by successful execution of its asset disposal strategy, such that debt-to-EBITDA approaches 4x. This would be accompanied by a meaningful increase in MLP cash distributions that also enable Teekay Parent to comfortably cover its debt obligations and general and administrative expenses.

The ratings could be downgraded with deteriorating liquidity or an inability to refinance approaching Parent or subsidiary debt maturities or to address their financial obligations on a timely basis. Additional reductions in the cash distributions received by Parent, an increase in its funded debt or declines in the market capitalizations of its subsidiaries that exert pressure on the market value of its limited or general partnership units could also drive downwards rating pressure. Repurchases of Parent's common shares or more aggressive financial policies could also result in ratings pressure.

The principal methodology used in these ratings was Shipping Industry published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Teekay Corporation, a Marshall Islands Corporation and headquartered in Bermuda with executive offices in Vancouver Canada, develops and operates projects in the marine midstream space. It does this through its general partnership interests in two master limited partnerships (MLPs), Teekay LNG Partners L.P. (NYSE: TGP, unrated ) and Teekay Offshore Partners L.P. (NYSE: TOO, rated B3 stable), its controlling ownership of Teekay Tankers Ltd. (NYSE: TNK, unrated) and its fleet of directly-owned offshore units. Teekay manages and operates over 200 vessels comprising liquefied gas, offshore, and conventional tanker assets, including vessels on order, and ownership interests in a number of joint ventures. Consolidated revenues were approximately $1.7 billion as of fiscal year ended December 31, 2018. Teekay Corporation is publicly traded and the founder's charitable organization, the Kattegat Trust, owns approximately 40% of the company through affiliates.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Yvonne Njogu
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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