Teekay Tankers (TNK) is taking the long road back to investors’ portfolios. After many lonely years out in the wilderness of “penny stocks”, Teekay Tankers initiated its journey back from just below one dollar a few short months ago. And after the spike in tanker rates and a two-dollar share breach a few weeks ago, broker-banker radar screens lit up once again. The entire tanker universe went nuts, of course. But few more than TNK.
The Saudi refinery attack and the Cosco Dalian ban created by macro political events conspired with industry specific vessel retrofit schedule mayhem to spark an industry rate spike and recovery not seen in decades. And now, stocks ranging from Teekay to Nordic American, Euronav and Tsakos, to name just a few, get a chance to do makeovers. Not simplistic and opportunistic share issues, but deep financial and corporate structure changes.
This cashflow recovery was what all tanker shares needed not only to make a recovery out of zombie share status, but also to garner the interest of bankers and investors alike to create corporate restructuring stories.
Teekay made the welcome move first. But it is a no brainer that a slew of tanker company managements should be on that same corporate restructuring bandwagon. And Teekay has neatly laid down the steps for this round by mainly:
1) Using a large expected tanker cashflow positive reversal to splash back onto institutional investor radar screens with a corporate plan to cement visibility gains into financial restructuring and therefore also lower investment risk – and thereby creating a leveraged effect of higher share profile and price;
2) Working on clear and understandable financial de-risking mechanics which include solidifying a financial structure roadmap through debt re-financing ($595m 5yr revolving facility) as well as touting potential selective asset sales, combined with a reverse share split designed to definitively leave shares away from a penny stock range (many investors can not invest in low share price stocks).
So, what we have is a once in 10-20 year opportunity to make things right and clean up balance sheets and corporate structures all at the same time. Investors reward cleanups and de-risking with higher share prices, which then bring market capitalisations back to levels that can allow further corporate activity.
Teekay Tankers shares jumping from the one dollar to the two dollar level was the first step on a long road to rehabilitation. Others may think they were not in as poor a condition to warrant a makeover. But that is not really the point. Because taking this low-cost makeover now opens many other doors which simply have not been open since the multi-stage tanker and shipping spiral down post the global financial crisis.