The company today announced a restructuring and recapitalization of the balance sheet by deferring charter hire payments to Teeky LNG Partners and a private equity placement of USD ~25m through a book building process. As we touched upon in our initiation in late April, today’s announced pro-rata equity issuance is a positive surprise, although at a heavy discount to last close. The restructuring/ refinancing also alleviates the challenging liquidity position we forecast, with the low cash point now at USD 6m in 4Q19E (-17m in 2Q19E previously). Although issuing equity at P/NAV ~0.25 is highly dilutive to our per share valuation, shareholders’ interests are well covered by the pro-rata participation and subsequent offering. Add the positive effects of increased market cap., share liquidity and reduced balance sheet risk, we reiterate our BUY recommendation, but lower our TP to NOK 5.6 (6.9) due to the dilution .
Deal highlights (from company presentation):
- Front loaded reduction in bare-boat rate payable to Teekay providing significantly lower cash breakeven – total of USD 29.3m deferred
- Rate reduced from current level of USD 49,100 per day to:
- USD 28,500 per day for both vessels the first 10 months
- USD 33,500 per day subsequent 11 months
- USD 38,500 per day last 10 months
- Deferred amounts will become payable at maturity of the contract (year-end 2019)
- Cash sweep mechanism introduced to reduce deferred amounts
- Bareboat charters for both vessels extended to 31 December 2019
- Option for early termination and refinance vessels at any time before maturity of the contracts
- Total purchase obligation of USD 113.3m and USD 114.5m at maturity (excluding deferred hire)
- No financial covenants except for dividend restrictions
Valuation: We lower our target price to NOK 5.6 (6.9) due to the dilution, somewhat offset by the balance sheet risk reduction. More detailed, our valuation is based on a weighted average of current and future NAV (impacted negatively on a per per share basis), in combination with a mid-cycle EV/EBITDA in 2018E/’19E (impacted positively from improved balance/EBITDA).
Please find new cash flow forecast in graphs below: