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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ___________________________________________________________
FORM 6-K
  ___________________________________________________________
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
Commission file number 1-33867
  ___________________________________________________________
TEEKAY TANKERS LTD.
(Exact name of Registrant as specified in its charter)
  ___________________________________________________________
Suite 2000, 550 Burrard Street, Bentall 5, Vancouver, BC V6C 2K2 Canada
(Address of principal executive office)
  ___________________________________________________________
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F  ý            Form 40-F  ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).
Yes  ¨            No   ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).
Yes  ¨            No   ý








 


Table of Contents

TEEKAY TANKERS LTD.
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
INDEX
 
PAGE
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.



Table of Contents

PART I – FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (note 1)
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
$
 
$
 
$
 
$
 
 
 
 
 
 
 
 
 
Voyage charter revenues (note 3)
 
207,926

 
191,495

 
525,404

 
413,572

Time-charter revenues (note 3)
 
34,986

 
1,496

 
50,553

 
4,906

Other revenues (notes 3 and 4)
 
3,580

 
14,016

 
12,435

 
26,690

Total revenues
 
246,492

 
207,007

 
588,392

 
445,168

 
 
 
 
 
 
 
 
 
Voyage expenses
 
(61,558
)
 
(97,398
)
 
(180,799
)
 
(200,397
)
Vessel operating expenses (note 13b)
 
(46,218
)
 
(53,600
)
 
(96,867
)
 
(108,187
)
Time-charter hire expenses
 
(9,296
)
 
(10,792
)
 
(19,175
)
 
(20,240
)
Depreciation and amortization
 
(29,546
)
 
(30,658
)
 
(59,178
)
 
(60,523
)
General and administrative expenses (note 13b)
 
(9,784
)
 
(9,508
)
 
(19,070
)
 
(18,673
)
Gain (loss) on sale of assets and write-down of
assets
 (note 15)
 
2,896

 

 
(191
)
 

Income from operations
 
92,986

 
5,051

 
213,112

 
37,148

 
 
 
 
 
 
 
 
 
Interest expense
 
(13,492
)
 
(16,607
)
 
(28,627
)
 
(33,549
)
Interest income
 
567

 
221

 
823

 
586

Realized and unrealized loss on derivative instruments (note 8)
 
(589
)
 
(1,778
)
 
(1,416
)
 
(2,625
)
Equity income (loss)
 
3,188

 
(169
)
 
5,128

 
584

Other income (note 9)
 
940

 
614

 
2,083

 
249

Net income (loss) before income tax
 
83,600

 
(12,668
)
 
191,103

 
2,393

Income tax recovery (expense) (note 10)
 
14,598

 
(1,639
)
 
13,934

 
(4,253
)
Net income (loss)
 
98,198

 
(14,307
)
 
205,037

 
(1,860
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per common share amounts (note 14)
 
 
 
 
 
 
 
 
 - Basic earnings (loss) per share
 
$
2.91

 
$
(0.43
)
 
$
6.08

 
$
(0.06
)
 - Diluted earnings (loss) per share
 
$
2.89

 
$
(0.43
)
 
$
6.04

 
$
(0.06
)
 
 
 
 
 
 
 
 
 
Weighted-average number of Class A and Class B common stock outstanding (note 14)
 
 
 
 
 
 
 
 
 - Basic
 
33,727,978

 
33,623,800

 
33,698,972

 
33,604,397

 - Diluted
 
33,978,730

 
33,623,800

 
33,962,511

 
33,604,397

 
 
 
 
 
 
 
 
 
Related party transactions (note 13)
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

1

Table of Contents

TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS (notes 1 and 2)
(in thousands of U.S. Dollars)
 
 
As at
 
As at
 
 
June 30, 2020
 
December 31, 2019
 
 
$
 
$
ASSETS
 
 
 
 
Current
 
 
 
 
Cash and cash equivalents
 
167,907

 
88,824

Restricted cash – current (note 16)
 
4,766

 
3,071

Accounts receivable
 
88,663

 
95,648

Assets held for sale (note 15)
 

 
65,458

Due from affiliates (note 13c)
 
2,440

 
697

Current portion of derivative assets (note 8)
 

 
577

Bunker and lube oil inventory
 
30,885

 
49,790

Prepaid expenses
 
12,103

 
10,288

Accrued revenue
 
42,153

 
106,872

Total current assets
 
348,917

 
421,225

Restricted cash – long-term (note 16)
 
3,437

 
3,437

Vessels and equipment
 
 
 
 
At cost, less accumulated depreciation of $563.8 million (2019 - $537.1 million) (note 6)
 
1,161,097

 
1,223,085

Vessels related to finance leases, at cost, less accumulated depreciation of $159.0 million
   (2019 - $143.7 million) (note 7)
 
511,879

 
527,081

Operating lease right-of-use assets (note 7)
 
10,758

 
19,560

Total vessels and equipment
 
1,683,734

 
1,769,726

Investment in and advances to equity-accounted joint venture
 
29,740

 
28,112

Derivative assets (note 8)
 

 
82

Other non-current assets
 
1,453

 
1,923

Intangible assets at cost, less accumulated amortization of $3.4 million (2019 - $3.2 million)
 
2,259

 
2,545

Goodwill
 
2,426

 
2,426

Total assets
 
2,071,966

 
2,229,476

LIABILITIES AND EQUITY
 
 
 
 
Current
 
 
 
 
Accounts payable
 
59,652

 
70,978

Accrued liabilities (note 13c)
 
40,360

 
59,735

Short-term debt (note 5)
 
10,000

 
50,000

Due to affiliates (note 13c)
 
2,091

 
2,139

Liabilities associated with assets held for sale (note 15)
 

 
2,980

Current portion of derivative liabilities (note 8)
 
414

 
86

Current portion of long-term debt (note 6)
 
27,549

 
43,573

Current obligations related to finance leases (note 7)
 
26,281

 
25,357

Current portion of operating lease liabilities (note 7)
 
10,986

 
16,290

Other current liabilities
 
8,485

 
8,567

Total current liabilities
 
185,818

 
279,705

Long-term debt (note 6)
 
285,389

 
516,106

Long-term obligations related to finance leases (note 7)
 
376,238

 
389,431

Long-term operating lease liabilities (note 7)
 
417

 
3,270

Other long-term liabilities (note 10)
 
27,516

 
51,044

Derivative liabilities (note 8)
 
789

 

Total liabilities
 
876,167

 
1,239,556

Commitments and contingencies (notes 5, 6, 7, and 8)
 
 
 
 
Equity
 
 
 
 
Common stock and additional paid-in capital (585.0 million shares authorized, 29.1 million Class A and 4.6 million Class B shares issued and outstanding as of June 30, 2020 and 585.0 million shares authorized, 29.0 million Class A and 4.6 million Class B shares issued and outstanding as at December 31, 2019) (note 12)
 
1,298,397

 
1,297,555

Accumulated deficit
 
(102,598
)
 
(307,635
)
Total equity
 
1,195,799

 
989,920

Total liabilities and equity
 
2,071,966

 
2,229,476

The accompanying notes are an integral part of the unaudited consolidated financial statements.

2

Table of Contents

TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (note 1)
(in thousands of U.S. Dollars)
 
 
 
Six Months Ended June 30,
 
 
2020
 
2019
 
 
$
 
$
Cash, cash equivalents and restricted cash provided by (used for)
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
Net income
 
205,037

 
(1,860
)
Non-cash items:
 


 

Depreciation and amortization
 
59,178

 
60,523

Loss on sale of assets and write-down of assets (note 15)
 
191

 

Unrealized loss on derivative instruments (note 8)
 
1,776

 
4,366

Equity income
 
(5,128
)
 
(584
)
Income tax (recovery) expense (note 10)
 
(12,873
)
 
3,795

Other
 
(8
)
 
2,743

Change in operating assets and liabilities
 
60,379

 
23,198

Expenditures for dry docking
 
(3,681
)
 
(27,815
)
Net operating cash flow
 
304,871

 
64,366

 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from short-term debt (note 5)
 
205,000

 
65,000

Proceeds from long-term debt, net of issuance costs (note 6)
 
477,822

 
16,421

Scheduled repayments of long-term debt (note 6)
 
(8,812
)
 
(50,800
)
Prepayments of long-term debt (note 6)
 
(717,368
)
 
(109,688
)
Prepayments of short-term debt (note 5)
 
(245,000
)
 
(50,000
)
Proceeds from financing related to sales and leaseback of vessels (note 8)
 

 
63,720

Scheduled repayments of obligations related to finance leases (note 7)
 
(12,269
)
 
(12,073
)
Other
 
(562
)
 
(126
)
Net financing cash flow
 
(301,189
)
 
(77,546
)
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Proceeds from sale of assets (note 15)
 
75,214

 

Expenditures for vessels and equipment
 
(3,076
)
 
(6,545
)
Loan repayments from equity-accounted joint venture
 
3,500

 

Net investing cash flow
 
75,638

 
(6,545
)
 
 
 
 
 
Increase (decrease) in cash, cash equivalents and restricted cash
 
79,320

 
(19,725
)
Cash, cash equivalents and restricted cash, beginning of the period
 
96,790

 
60,507

Cash, cash equivalents and restricted cash, end of the period
 
176,110

 
40,782

Supplemental cash flow information (note 16)
The accompanying notes are an integral part of the unaudited consolidated financial statements.


3

Table of Contents

TEEKAY TANKERS LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (note 1)
(in thousands of U.S. Dollars, except share amounts)
 
 
 
Common Stock and Additional
Paid-in Capital
 
 
 
 
 
 
Thousands
of Common
Shares
#
 
Class A Common Shares
$
 
Class B Common Shares
$
 
Accumulated
Deficit
$
 
Total
$
Balance as at December 31, 2019
 
33,655

 
1,209,023

 
88,532

 
(307,635
)
 
989,920

Net income
 

 

 

 
106,839

 
106,839

Equity-based compensation (note 12)
 
57

 
468

 

 

 
468

Balance as at March 31, 2020
 
33,712

 
1,209,491

 
88,532

 
(200,796
)
 
1,097,227

Net income
 

 

 

 
98,198

 
98,198

Equity-based compensation (note 12)
 
26

 
374

 

 

 
374

Balance as at June 30, 2020
 
33,738

 
1,209,865

 
88,532

 
(102,598
)
 
1,195,799


 
 
Common Stock and Additional
Paid-in Capital
 
 
 
 
 
 
Thousands
of Common
Shares
#
 
Class A Common Shares
$
 
Class B Common Shares
$
 
Accumulated
Deficit
$
 
Total
$
Balance as at December 31, 2018
 
33,570

 
1,207,397

 
88,532

 
(348,996
)
 
946,933

Net income
 

 

 

 
12,447

 
12,447

Equity-based compensation (note 12)
 
54

 
668

 

 

 
668

Balance as at March 31, 2019
 
33,624

 
1,208,065

 
88,532

 
(336,549
)
 
960,048

Net loss
 

 

 

 
(14,307
)
 
(14,307
)
Equity-based compensation (note 12)
 

 
154

 

 

 
154

Balance as at June 30, 2019
 
33,624

 
1,208,219

 
88,532

 
(350,856
)
 
945,895

The accompanying notes are an integral part of the unaudited consolidated financial statements.


4

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)




1.
Basis of Presentation
The unaudited interim consolidated financial statements (or unaudited consolidated financial statements) have been prepared in accordance with United States generally accepted accounting principles (or GAAP). These unaudited consolidated financial statements include the accounts of Teekay Tankers Ltd., its wholly-owned subsidiaries, equity-accounted joint venture and any variable interest entities (or VIEs) of which it is the primary beneficiary (collectively, the Company). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, filed on Form 20-F with the U.S. Securities and Exchange Commission (or the SEC) on April 15, 2020. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments, consisting solely of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s unaudited consolidated financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Intercompany balances and transactions have been eliminated upon consolidation.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (or COVID-19) as a pandemic. Given the dynamic nature of these circumstances, the full extent to which the COVID-19 pandemic may have direct or indirect impact on the Company's business and the related financial reporting implications cannot be reasonably estimated at this time, although the pandemic could materially affect the Company's business, results of operations and financial condition in the future. Spot tanker rates have come under pressure since mid-May 2020 as a result of record OPEC+ oil production cuts and lower production from other oil producing countries which reduced crude exports, and the unwinding of floating storage. COVID-19 was also a contributing factor to the reduction in certain tax accruals as described in Note 10 - Income Tax Recovery (Expense).

Voyage Charter Revenues and Expenses

Voyage expenses incurred that are recoverable from the Company's customers in connection with its voyage charter contracts are reflected in voyage charter revenues and voyage expenses. The Company recast prior periods to reflect this presentation. This had the impact of increasing both voyage charter revenues and voyage expenses by $4.7 million and $10.4 million for the three and six months ended June 30, 2019, respectively.

Reverse Stock Split

The per share amounts for all periods presented have been adjusted to reflect a one-for-eight reverse stock split completed in November 2019.
2.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (or ASU 2016-13). ASU 2016-13 introduces a new credit loss methodology, which requires earlier recognition of potential credit losses, while also providing additional transparency about credit risk. This new credit loss methodology utilizes a lifetime "expected credit loss" measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are subsequently adjusted each period for changes in expected lifetime credit losses. This methodology replaces multiple existing impairment methods under previous GAAP for these types of assets, which generally required that a loss be incurred before it was recognized. The Company adopted this update on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company's unaudited consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (or ASU 2019-12), as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences, among other changes. The guidance becomes effective for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the effect of adopting this new guidance.

In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (or ASU 2020-04). This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (or LIBOR). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in this ASU are effective through December 31, 2022. The Company is currently evaluating the effect of adopting this new guidance.

5

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)




3.
Revenue
The Company’s primary source of revenue is from chartering its vessels (Aframax tankers, Suezmax tankers and Long Range 2 (or LR2) tankers) to its customers. The Company utilizes two primary forms of contracts, consisting of voyage charters and time-charters.

The extent to which the Company employs its vessels on voyage charters versus time charters is dependent upon the Company’s chartering strategy and the availability of time charters. Spot market rates for voyage charters are volatile from period to period, whereas time charters provide a stable source of monthly revenue. The Company also provides ship-to-ship support services, which include managing the process of transferring cargo between seagoing ships positioned alongside each other, either stationary or underway, as well as commercial management services to third-party owners of vessels. Finally, prior to April 30, 2020, the Company managed liquefied natural gas (or LNG) terminals and procured LNG-related goods for terminal owners and other customers. For descriptions of these types of contracts, see Item 18 - Financial Statements: Note 3 in the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2019. On April 30, 2020, the Company completed the sale of the non-US portion of its ship-to-ship support services business, as well as its LNG terminal management business (see note 15).

The following table contains a breakdown of the Company's revenue by contract type for the three and six months ended June 30, 2020 and June 30, 2019. All revenue is part of the Company's tanker segment, except for revenue for the non-US portion of the ship-to-ship support services and LNG terminal management, consultancy, procurement, and other related services, which are part of the Company's ship-to-ship transfer segment. The Company’s lease income consists of the revenue from its voyage charters and time-charters.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
$
 
$
 
$
 
$
Voyage charter revenues
 
 
 
 
 
 
 
     Suezmax
93,985

 
87,001

 
251,705

 
189,009

     Aframax
59,369

 
48,889

 
131,833

 
115,136

     LR2
27,873

 
26,325

 
76,659

 
61,952

     Full service lightering
26,699

 
29,280

 
65,207

 
47,475

     Total
207,926

 
191,495

 
525,404

 
413,572

 
 
 
 
 
 
 
 
Time-charter revenues
 
 
 
 
 
 
 
     Suezmax
31,000

 
1,496

 
46,567

 
3,069

     Aframax
2,158

 

 
2,158

 
1,837

     LR2
1,828

 

 
1,828

 

     Total
34,986

 
1,496

 
50,553

 
4,906

 
 
 
 
 
 
 
 
Other revenues
 
 
 
 
 
 
 
     Ship-to-ship support services
1,123

 
8,222

 
7,842

 
13,161

     Commercial management
1,848

 
2,090

 
4,201

 
4,326

     LNG terminal management, consultancy, procurement and other
609

 
3,704

 
392

 
9,203

     Total
3,580

 
14,016

 
12,435

 
26,690

 
 
 
 
 
 
 
 
Total revenues
246,492

 
207,007

 
588,392

 
445,168


Charters-out
As at June 30, 2020, 14 (December 31, 2019 - five) of the Company’s vessels operated under fixed-rate time charter contracts, six of which are scheduled to expire in 2020, six of which are scheduled to expire in 2021 and two of which are scheduled to expire in 2022. As at June 30, 2020, the minimum scheduled future revenues to be received by the Company under these time charters were approximately $70.5 million (remainder of 2020), $41.7 million (2021) and $5.2 million (2022) (December 31, 2019 - $40.0 million (2020)). The hire payments should not be construed to reflect a forecast of total charter hire revenue for any of the periods. Future hire payments do not include hire payments generated from new contracts entered into after June 30, 2020, from unexercised option periods of contracts that existed on June 30, 2020 or from variable consideration, if any. In addition, future hire payments presented above have been reduced by estimated off-hire time for required periodic maintenance and do not reflect the impact of revenue sharing arrangements whereby time-charter revenues

6

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)



are shared with other revenue sharing arrangement participants. Actual amounts may vary given future events such as unplanned vessel maintenance.
Contract Liabilities
As at June 30, 2020, the Company had $7.7 million (December 31, 2019 - $7.5 million) advanced payments recognized as contract liabilities that are expected to be recognized as time-charter revenues in subsequent periods and which currently are included in other current liabilities on the Company's unaudited consolidated balance sheets.
4.
Segment Reporting
On April 30, 2020, the Company completed the sale of the non-US portion of its ship-to-ship support services business, as well as its LNG terminal management business. Following the sale, the Company's remaining ship-to-ship support operations were integrated into the Company's tanker business. As a result, effective April 30, 2020, the Company has one reportable segment. The Company’s segment information for all periods prior to the sale and reorganization has been retroactively adjusted whereby the remaining ship-to-ship support operations have been reallocated from the ship-to-ship transfer segment to the tanker segment. Consequently, the Company’s tanker segment now consists of the operation of all of its tankers, including the operations from those tankers employed on full service lightering contracts, and the US based ship-to-ship support service operations that the Company retained, including its lightering support services provided as part of full service lightering operations. The Company’s ship-to-ship transfer segment consists of the Company’s non-US lightering support services, LNG terminal management, consultancy, procurement, and other related services which were sold as of April 30, 2020. Segment results are evaluated based on income (loss) from operations. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s unaudited consolidated financial statements.

The following tables include results for the Company’s revenues and income (loss) from operations by segment for the three and six months ended June 30, 2020 and June 30, 2019.

Three Months Ended June 30, 2020
 
 
 
 
 
 
 
 
 
Tanker Segment
 
Ship-to-Ship
Transfer Segment
 
Total
 
$
 
 
$
 
 
$
 
Revenues (1)
245,728

 
 
764

 
 
246,492

 
Voyage expenses
(61,558
)
 
 

 
 
(61,558
)
 
Vessel operating expenses
(45,140
)
 
 
(1,078
)
 
 
(46,218
)
 
Time-charter hire expenses
(9,296
)
 
 

 
 
(9,296
)
 
Depreciation and amortization
(29,425
)
 
 
(121
)
 
 
(29,546
)
 
General and administrative expenses (2)
(9,637
)
 
 
(147
)
 
 
(9,784
)
 
(Loss) gain on sale of assets and write-down of assets
(185
)
 
 
3,081

 
 
2,896

 
Income from operations
90,487

 
 
2,499

 
 
92,986

 
 
 
 
 
 
 
 
 
 
Equity income
3,188

 
 

 
 
3,188

 

7

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)



Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
Tanker Segment
 
Ship-to-Ship Transfer Segment
 
Total
 
$
 
 
$
 
 
$
 
Revenues (1)
197,442

 
 
9,565

 
 
207,007

 
Voyage expenses
(97,398
)
 
 

 
 
(97,398
)
 
Vessel operating expenses
(46,181
)
 
 
(7,419
)
 
 
(53,600
)
 
Time-charter hire expenses
(10,792
)
 
 

 
 
(10,792
)
 
Depreciation and amortization
(29,925
)
 
 
(733
)
 
 
(30,658
)
 
General and administrative expenses (2)
(9,116
)
 
 
(392
)
 
 
(9,508
)
 
Income from operations
4,030

 
 
1,021

 
 
5,051

 
 
 
 
 
 
 
 
 
 
Equity loss
(169
)
 
 

 
 
(169
)
 

Six Months Ended June 30, 2020
 
 
 
 
 
 
 
 
 
Tanker Segment
 
Ship-to-Ship Transfer Segment
 
Total
 
 
$
 
 
$
 
 
$
 
Revenues (1)
581,400

 
 
6,992

 
 
588,392

 
Voyage expenses
(180,799
)
 
 

 
 
(180,799
)
 
Vessel operating expenses
(90,927
)
 
 
(5,940
)
 
 
(96,867
)
 
Time-charter hire expenses
(19,175
)
 
 

 
 
(19,175
)
 
Depreciation and amortization
(58,685
)
 
 
(493
)
 
 
(59,178
)
 
General and administrative expenses (2)
(18,443
)
 
 
(627
)
 
 
(19,070
)
 
(Loss) gain on sale of assets and write-down of assets
(3,272
)
 
 
3,081

 
 
(191
)
 
Income from operations
210,099

 
 
3,013

 
 
213,112

 
 
 
 
 
 
 
 
 
 
Equity income
5,128

 
 

 
 
5,128

 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
Tanker Segment
 
Ship-to-Ship Transfer Segment
 
Total

 
 
$
 
 
$
 
 
$
 
Revenues (1)
426,386

 
 
18,782

 
 
445,168

 
Voyage expenses
(200,397
)
 
 

 
 
(200,397
)
 
Vessel operating expenses
(93,139
)
 
 
(15,048
)
 
 
(108,187
)
 
Time-charter hire expenses
(20,240
)
 
 

 
 
(20,240
)
 
Depreciation and amortization
(59,115
)
 
 
(1,408
)
 
 
(60,523
)
 
General and administrative expenses (2)
(17,915
)
 
 
(758
)
 
 
(18,673
)
 
Income from operations
35,580

 
 
1,568

 
 
37,148

 
 
 
 
 
 
 
 
 
 
Equity income
584

 
 

 
 
584

 




8

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)



(1)
Revenues earned from the ship-to-ship transfer segment are reflected in Other Revenues in the Company's unaudited consolidated statements of income (loss).
(2)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:
 
As at
 
As at
 
June 30, 2020
 
December 31, 2019
 
$
 
$
Tanker
1,904,059

 
2,114,451

Ship-to-Ship Transfer

 
26,201

Cash and cash equivalents
167,907

 
88,824

Consolidated total assets
2,071,966

 
2,229,476



5.
Short-Term Debt
In November 2018, Teekay Tankers Chartering Pte. Ltd. (or TTCL) a wholly-owned subsidiary of the Company, entered into a working capital revolving loan facility (or the Working Capital Loan), which initially provided available aggregate borrowings of up to $40.0 million for TTCL, and had an initial maturity date in May 2019, subject to extension as described below. The aggregate borrowings were subsequently increased to $80.0 million, effective December 2019. The next maturity date of the Working Capital Loan is in November 2020. The Working Capital Loan maturity date is continually extended for further periods of six months thereafter unless and until the lender gives notice in writing that no further extensions shall occur. Proceeds of the Working Capital Loan are used to provide working capital in relation to certain vessels subject to the revenue sharing agreements (or RSAs). Interest payments are based on LIBOR plus a margin of 3.5%. The Working Capital Loan is collateralized by the assets of TTCL. The Working Capital Loan requires the Company to maintain its paid-in capital contribution under the RSAs and the retained distributions of the RSA counterparties in an amount equal to the greater of (a) an amount equal to the minimum average capital contributed by the RSA counterparties per vessel in respect of the RSA (including cash, bunkers or other working capital contributions and amounts accrued to the RSA counterparties but unpaid) and (b) a minimum capital contribution ranging from $20.0 million to $30.0 million based on the amount borrowed. As at June 30, 2020, $10.0 million (December 31, 2019 - $50.0 million) was owing under this facility, and the average interest rate on the facility was 3.7% (December 31, 2019 - 5.0%). As of the date these unaudited consolidated financial statements were issued, the Company was in compliance with all covenants in respect of this facility.
6.
Long-Term Debt
 
As at
 
As at
 
June 30, 2020
 
December 31, 2019
 
$
 
$
Revolving Credit Facility due 2024
235,000

 
341,132

Term Loan due 2021
86,681

 
221,729

Total principal
321,681

 
562,861

Less: unamortized discount and debt issuance costs
(8,743
)
 
(3,182
)
Total debt
312,938

 
559,679

Less: current portion
(27,549
)
 
(43,573
)
Non-current portion of long-term debt
285,389

 
516,106



As at June 30, 2020, the Company had one revolving credit facility (or the 2020 Revolver) (December 31, 2019 - two revolving facilities), which, as at such date, provided for aggregate borrowings of up to $485.6 million, of which $250.6 million was undrawn (December 31, 2019 - $371.5 million, of which $30.4 million was undrawn). Interest payments are based on LIBOR plus a margin. As at June 30, 2020, such margin was 2.40% (December 31, 2019 - ranged from 2.00% to 2.75%). The total amount available under the 2020 Revolver decreases by $47.2 million (remainder of 2020), $91.4 million (2021), $80.4 million (2022), $65.3 million (2023) and $201.3 million (2024). As at June 30, 2020, the Company also had one term loan outstanding (December 31, 2019: three), which totaled $86.7 million (December 31, 2019 - $221.7 million). Interest payments on the term loan are based on a combination of a fixed rate of 5.4% (December 31, 2019 - 5.4%) and a variable rate based on LIBOR plus a margin. As at June 30, 2020, the margin was 0.5% (December 31, 2019 - ranged from 0.3% to 2.0%). The term loan repayments are made in semi-annual payments. The term loan also has a balloon or bullet repayment due at maturity in 2021. The 2020 Revolver and term loan are further described below.


9

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)



In January 2020, the Company entered into the 2020 Revolver, which is scheduled to mature in December 2024, and which had an outstanding balance of $235.0 million as at June 30, 2020. The 2020 Revolver was used to repay a portion of the $455.3 million previously outstanding under two previous revolving credit facilities of the Company, which were scheduled to mature in 2021 and 2022, and under two term loan facilities, which were scheduled to mature in 2020 and 2021. The 2020 Revolver is collateralized by 31 of the Company's vessels, together with other related security. The total net book value of these 31 vessels as at June 30, 2020 was $1,021.4 million. The 2020 Revolver requires that the Company maintain a minimum hull coverage ratio of 125% of the total outstanding drawn balance for the facility period. Such requirement is assessed on a semi-annual basis with reference to vessel valuations compiled by two or more agreed upon third parties. Should the ratio drop below the required amount, the lender may request that the Company either prepay a portion of the loan in the amount of the shortfall or provide additional collateral in the amount of the shortfall, at the Company's option. As of June 30, 2020, the hull coverage ratio was 379%. The vessel values used in this ratio are appraised values provided by third parties. A decline in the tanker market could negatively affect the ratio. In addition, the Company is required to maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5% of the Company's total consolidated debt and obligations related to finance leases.

The Company’s term loan, with a total outstanding balance of $86.7 million as at June 30, 2020 (December 31, 2019 - $221.7 million), which was scheduled to mature in 2021, was guaranteed by Teekay Corporation (or Teekay) and collateralized by four of the Company’s vessels, together with other related security. The term loan required Teekay and the Company collectively to maintain the greater of (a) free cash (cash and cash equivalents) of at least $100.0 million and (b) an aggregate of free cash and undrawn committed revolving credit lines with at least six months to maturity of at least 7.5% of Teekay's total consolidated debt and obligations related to finance leases (excluding the debt of Teekay LNG Partners L.P. (or TGP) and its subsidiaries). In August 2020, the Company refinanced the term loan facility (or the 2020 Term Loan) and replaced the guarantee from Teekay with a guarantee from five of the Company's wholly-owned subsidiaries. The 2020 Term Loan facility is scheduled to mature in 2023. The Company is required to maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5% of the Company's total consolidated debt and obligations related to finance leases (note 18).

As of the date these unaudited consolidated financial statements were issued, the Company was in compliance with all covenants in respect of the 2020 Revolver and the 2020 Term Loan.
The weighted-average interest rate on the Company’s long-term debt as at June 30, 2020 was 3.0% (December 31, 2019 - 3.7%). This rate does not reflect the effect of the Company’s interest rate swap agreement (note 8).
The aggregate annual long-term principal repayments required to be made by the Company under the 2020 Revolver and the term loan subsequent to June 30, 2020, including the impact of the debt refinancing completed in August 2020, are $22.1 million (remainder of 2020), $11.2 million (2021), $11.2 million (2022), $75.9 million (2023) and $201.3 million (2024).
7.
Operating Leases and Obligations Related to Finance Leases
Operating Leases
The Company charters-in vessels from other vessel owners on time-charter contracts, whereby the vessel owner provides use and technical operation of the vessel for the Company. A time charter-in contract is typically for a fixed period of time, although in certain cases, the Company may have the option to extend the charter. The Company typically pays the owner a daily hire rate that is fixed over the duration of the charter. The Company is generally not required to pay the daily hire rate during periods the vessel is not able to operate.
As at June 30, 2020, minimum commitments to be incurred by the Company under time charter-in contracts were approximately $17.3 million (remainder of 2020) and $6.5 million (2021).
Obligations Related to Finance Leases
 
As at
 
As at
 
June 30, 2020
 
December 31, 2019
 
$
 
$
Total obligations related to finance leases
402,519

 
414,788

Less: current portion
(26,281
)
 
(25,357
)
Long-term obligations related to finance leases
376,238

 
389,431


From 2017 to 2019, the Company completed sale-leaseback financing transactions with financial institutions relating to 16 of the Company's vessels. Under these arrangements, the Company transferred the vessels to subsidiaries of the financial institutions (collectively, the Lessors) and leased the vessels back from the Lessors on bareboat charters ranging from 9- to 12-year terms. The Company is obligated to purchase eight of the vessels upon maturity of their respective bareboat charters. The Company also has the option to purchase each of the 16 vessels at various times starting between July 2020 and November 2021 until the end of their respective lease terms.

10

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)



The bareboat charters related to these vessels require that the Company maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5.0% of the Company's consolidated debt and obligations related to finance leases (excluding applicable security deposits reflected in restricted cash - long-term on the Company's unaudited consolidated balance sheets).
Four of the bareboat charters require the Company to maintain, for each vessel, a minimum hull coverage ratio of 90% of the total outstanding principal balance during the first three years of the lease period and 100% of the total outstanding principal balance thereafter. As at June 30, 2020, this ratio was approximately 129% (December 31, 2019 - 122%).
Six of the bareboat charters require the Company to maintain, for each vessel, a minimum hull coverage ratio of 78% of the total outstanding principal balance during the first two years of the lease period, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at June 30, 2020, this ratio was approximately 110% (December 31, 2019 - 115%).
Four of the bareboat charters also require the Company to maintain, for each vessel, a minimum hull overage ratio of 100% of the total outstanding principal balance. As at June 30, 2020, this ratio was approximately 163% (December 31, 2019 - 158%).
The remaining two bareboat charters also require the Company to maintain, for each vessel, a minimum hull coverage ratio of 75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at June 30, 2020, this ratio was approximately 102% (December 31, 2019 - 109%).
Such requirements are assessed annually with reference to vessel valuations compiled by one or more agreed upon third parties. As of the date these unaudited consolidated financial statements were issued, the Company was in compliance with all covenants in respect of its obligations related to finance leases.
The weighted-average interest rate on the Company’s obligations related to finance leases as at June 30, 2020 was 7.6% (December 31, 2019 - 7.6%).
As at June 30, 2020, the Company's total remaining commitments related to the financial liabilities of these vessels were approximately $573.9 million (December 31, 2019 - $601.7 million), including imputed interest of $171.4 million (December 31, 2019 - $186.9 million), repayable from 2020 through 2030, as indicated below:
 
 
Commitments
Year
 
June 30, 2020
Remainder of 2020
 
28,449

2021
 
56,222

2022
 
56,213

2023
 
56,204

2024
 
56,348

Thereafter
 
320,481



8.
Derivative Instruments
Interest rate swap agreement
The Company uses derivative instruments in accordance with its overall risk management policies. The Company enters into interest rate swap agreements which exchange a receipt of floating interest for a payment of fixed interest to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company has not designated, for accounting purposes, its interest rate swap as cash flow hedges of its U.S. Dollar LIBOR-denominated borrowings.

11

Table of Contents
TEEKAY TANKERS LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share or per share data)



In January 2020, the Company completed a refinancing of current long-term debt facilities (note 6). As a result of this refinancing, the Company extinguished all of its then existing interest rate swaps and entered into a new interest rate swap which is scheduled to mature in December 2024. The following summarizes the Company's interest rate swap agreement as at June 30, 2020
 
Interest Rate
 
Notional Amount
 
Fair Value /Carrying Amount of Liability
 
Remaining Term
 
Fixed Swap Rate
 
 Index
 
$
 
$
 
(years)
 
(%) (1)
LIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
U.S. Dollar-denominated interest rate swap agreement
LIBOR
 
50,000

 
(1,038
)
 
4.5
 
0.76
 
(1)
Excludes the margin the Company pays on its variable-rate debt, which, as of June 30, 2020, ranged from 0.50% to 3.50%.
The Company is potentially exposed to credit loss in the event of non-performance by the counterparty to the interest rate swap agreements in the event that the fair value results in an asset being recorded. In order to minimize counterparty risk, the Company only enters into interest rate swap agreements with counterparties that are rated A– or better by Standard & Poor’s or A3 or better by Moody’s at the time transactions are entered into.
Forward freight agreements
The Company uses forward freight agreements (or FFAs) in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized loss on derivative instruments in the Company's unaudited consolidated statements of income (loss).
The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s unaudited consolidated balance sheets.
 
Current portion of derivative assets
 
Derivative assets
 
Accounts receivable (Accrued liabilities)
 
Current portion of derivative liabilities
 
Derivative liabilities
 
$
 
$
 
$
 
$
 
$
As at June 30, 2020


 


 

 


 
 
     Interest rate swap agreement

 

 

 
(249
)
 
(789
)
     Forward freight agreements

 

 

 
(165
)
 

 

 

 

 
(414
)
 
(789
)
 
 
 
 
 
 
 
 
 
 
As at December 31, 2019
 
 
 
 
 
 
 
 
 
     Interest rate swap agreements
577

 
82

 
230

 

 

Forward freight agreements

 

 

 
(86
)
 

 
577

 
82

 
230