Teekay Corporation to sell most of its tankers to Teekay Tankers

Teekay Corporation (NYSE:TK) is to sell 13 of its 17 directly-owned conventional tanker to its publicly-traded subsidiary, Teekay Tankers Ltd. (NYSE:TNK) for $455 million. The sale includes the ship’s related time-charter contracts, debt facilities and other assets and rights.

Peter Evensen, Teekay’s President and Chief Executive Officer. “The sale of nearly all of Teekay Parent’s directly-owned conventional tanker fleet is an important deleveraging event which we believe positions the company well for further investment in high-return growth projects. Given the strong fundamentals in our growing fixed-rate businesses, notably our offshore and LNG shipping segments, we are confident in our ability to find new opportunities to enhance our profitability and shareholder value.”

Bruce Chan, Teekay Tankers’ Chief Executive Officer, said the deal was “Teekay Tankers’ most significant transaction since its initial public offering.”  

“The addition of 13 modern vessels nearly doubles our fleet size and provides a larger and broader platform for Teekay Tankers in the mid-size crude oil tanker segment,” said Mr. Chan. “The transaction also introduces product tankers into our fleet mix, a segment which we believe has favorable fundamentals. In addition, the substantial time-charter coverage that we are acquiring with these vessels increases our estimated fixed-cover for the 12-month period commencing July 1, 2012 from approximately 29 percent to approximately 43 percent, which provides further downside protection for Teekay Tankers’ full payout dividend during this period and is well-aligned with our outlook for improving spot tanker market fundamentals in 2013.”

Mr. Chan added, “The assumption of existing low-cost debt facilities secured by these vessels also includes a portion of undrawn revolver capacity. As a result, upon completion of this transaction, Teekay Tankers’ liquidity will increase to approximately $400 million, which we believe will provide Teekay Tankers with significant financial flexibility and positions us well to pursue further accretive growth opportunities.”

Transaction Summary

Teekay to sell to Teekay Tankers a fleet of seven crude oil tankers and six product tankers, along with related time-charter out contracts, debt facilities and an interest rate swap, for an aggregate price of approximately $455 million.

As partial consideration, Teekay will receive $25 million in new Teekay Tankers Class A shares at a price of $5.60 per share.

Nine of the 13 vessels to be sold currently operate under fixed-rate time-charters.

The sale includes the assumption by Teekay Tankers of outstanding debt of approximately $180 million in term loans and approximately $290 million in available revolving credit facilities, of which approximately $40 million will be undrawn.

Teekay will grant Teekay Tankers a right of first refusal on any conventional tanker opportunities developed by Teekay for a period of three years from the closing date.

As part of the transaction, Teekay and Teekay Tankers will enter into a non-competition agreement, which will provide Teekay Tankers with a right of first refusal to participate in any future conventional crude oil tanker and product tanker opportunities developed by Teekay for a period of three years from the closing date of this transaction.

As partial consideration for the sale, Teekay will receive $25 million of newly issued shares of Teekay Tankers Class A common stock, and the remaining amount will be settled through a combination of cash payments to Teekay and the assumption by Teekay Tankers of existing debt secured by the acquired vessels. The number of Teekay Tankers Class A common shares to be issued to Teekay was determined based on an aggregate value of $25 million and a price per share of $5.60, which represents the trailing 20-day volume-weighted average price for the period immediately preceding today’s announcement of the transaction (inclusive of April 16, 2012). As a result of this share issuance, Teekay’s economic interest in Teekay Tankers will increase from approximately 20 percent to approximately 25 percent and its voting interest as a result of its combined ownership of Class A and Class B shares will increase from approximately 51 percent to approximately 53 percent.

The transaction has been approved by Teekay Corporation’s Board of Directors. A Conflicts Committee, comprised of the independent members of Teekay Tankers’ Board of Directors, negotiated the transaction on behalf of Teekay Tankers and retained DNB Markets as its financial advisor, which also provided a fairness opinion to the Teekay Tankers Conflicts Committee in connection with the transaction. The transaction, which is subject to final documentation, receiving relevant third party consents, and other customary closing conditions, is expected to be completed in the second quarter of 2012.

April 16, 2012